A considerable number of individuals choose not to disclose their previous salary details to their new employers, a practice that can have unintended consequences when it comes to income tax calculations. When a new employer determines tax liability for the financial year based solely on the income earned within their organization, it may result in a miscalculation of taxes.
The issue arises when aggregating salary income from different employers. Failure to provide information about previous earnings can lead to inaccuracies in the new employer’s tax computation. Typically, all employers may allow for the basic exemption limit and standard deduction, and multiple employers may inadvertently grant the benefit of tax-saving deductions during the tax calculation process. Additionally, the cumulative effect of combining all salary income might push an individual into a higher income tax slab.
This discrepancy can lead to a tax liability that was not anticipated by the taxpayer. Consequently, individuals may find themselves owing more in taxes than expected due to the oversight of not disclosing comprehensive salary information to their current employer.
Needs to pay Advance Tax
The need to pay advance tax may arise if an individual’s total tax liability for the financial year exceeds Rs 10,000. Advance tax is a mechanism wherein taxpayers are required to pay their tax dues at specified intervals throughout the year, as determined by the income tax department. Failing to account for previous salary details when transitioning between jobs can potentially trigger the need for advance tax payments, adding an additional layer of complexity to the tax planning process. Therefore, clear communication of previous salary information is essential to ensure accurate income tax calculations and compliance with advance tax requirements.
Due dates for paying advance tax
The income tax department expects you to pay your taxes on time, otherwise, you will be charged interest for late payment, at the time of filing your returns. Advance tax is paid on the following dates of a financial year:
| On or Before | In case of all taxpayers other than taxpayers opting for presumptive income u/s 44AD | Taxpayers opting for presumptive income u/s 44AD |
| 15th June | Up to 15% of advance tax payable | NIL |
| 15th September | Up to 45% of advance tax payable | NIL |
| 15th December | Up to 75% of advance tax payable | NIL |
| 15th March | Up to 100% of advance tax payable | Up to 100% of advance tax payable |
Interest On Default in payment of advance tax
1) Interest under section 234B is applicable when:
i. Tax Liability Exceeding Rs 10,000 without Advance Tax Payment: Applicable when your tax liability, after adjusting for TDS for the entire financial year, surpasses Rs 10,000, and you have not made any advance tax payments.
ii. Insufficient Advance Tax Payments: Applicable if you have paid advance tax, but the amount falls short of 90% of the assessed tax. The assessed tax is the tax that would be payable on the total income as per the latest tax slab rates.
iii. Single Reduction in Advance Tax Paid for Updated ITR: If a taxpayer files an updated Income Tax Return (ITR), the reduction in the amount of advance tax paid is considered only once when calculating the interest payable under section 234B. This provision was introduced in the Budget of 2023.
In any of the aforementioned situations, interest under section 234B becomes applicable. The interest is computed at a rate of 1% on the assessed tax amount less the advance tax paid.
2) Interest under section 234C is applicable when
The interest on delayed payment of advance tax in case of a taxpayer other than the one opting for presumptive income u/s 44AD is as below:
| Particulars | Rate of Interest | Period of Interest |
Amount on which interest is calculated |
| If Advance Tax paid on or before June 15 is less than 15% of the Amount* | Simple interest @1% per month | 3 months | 15% of Amount* (-)tax already deposited before June 15 |
| If Advance Tax paid on or before September 15 is less than 45% of the Amount* | Simple interest @1% per month | 3 months | 45% of Amount* (-) tax already deposited before September 15 |
| If Advance Tax paid on or before December 15 is less than 75% of the Amount* | Simple interest @1% per month | 3 months | 75% of Amount* (-) tax already deposited before December 15 |
| If Advance Tax paid on or before March 15 is less than 100% of the Amount* | Simple interest @1% per month | – | 100% of Amount* (-) tax already deposited before March 15 |
- Interest is not levied in cases of a shortfall in the payment of advance tax if the shortfall is attributed to the underestimation or failure to estimate the amount of capital gains or speculative income, such as lottery winnings or gambling income.
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In instances where the taxpayer has fully settled the tax liability associated with the aforementioned sources of income while making the remaining instalments of advance tax payments, or if no instalments are due, and the taxpayer ensures the complete payment before the conclusion of the financial year, no interest is imposed.
Conclusion: Disclosing previous salary details to new employers is crucial for accurate income tax calculations. Understanding the intricacies of advance tax, due dates, and interest implications under sections 234B and 234C is essential for seamless tax planning. By navigating these complexities, individuals can ensure compliance and avoid unexpected tax liabilities and interest charges.
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