CA Umesh Sharma
Krishna (Fictional Character): Arjuna, You are Right. Earlier, till F.Y 2015-16 taxpayers other than Companies had to pay advance tax in 3 instalments i.e. on or before 15th September, 15th December and 15th March. However, from F.Y 2016-2017 the first installment of advance tax will have to be paid on or before 15th June and later the remaining in aforesaid 3 installments. This implies that advance tax now will have to be paid in 4 installments. So now every taxpayer has to pay advance tax in 4 installments. If the taxpayer fails to comply with the said provision, he will be liable to pay interest on it.
Arjuna: Krishna, who are required to pay Advance tax?
Krishna: Arjuna, every taxpayer whose annual tax liability is Rs. 10,000/- or more are required to pay advance tax. In case of senior citizens of age 60 years or above who do not have any income under the head “Profits and Gains Business Profession” are not required to pay advance tax. In case of a salaried person, if TDS gets deducted on the whole income, then he need not pay advance tax.
Arjuna: Krishna, if the annual turnover of the taxpayer is less than Rs.2 Crore and he shows 8% or more profit under presumptive taxation of section 44AD, will he be liable to pay advance tax?
Krishna: Arjuna, earlier, advance tax provisions were not applicable to the taxpayers who used to show 8% or more profit. But from F.Y 2016-17 such provisions are applicable to them also. But they will be liable to pay advance tax in only one installment i.e. 100% tax will have to be paid before 15th March.
Arjuna: Krishna, when and how much advance tax has to be paid?
Krishna: Arjuna, from F.Y 2016-17 every taxpayer will have to pay first installment of 15% tax before 15th June, 2nd installment of 45% before 15th September including 1st installment, 3rd installment of 75% before 15Th December including 1st and 2nd and 4th installment of 100% including 1st to 3rd before 15Th March. For Example if income tax liability for the year is Rs. 1,00,000, then taxpayer will have to pay Rs. 15,000 in first, Rs. 30,000 in second, Rs. 30,000 in third and Rs. 25,000 in the fourth installment.
Arjuna: Krishna, what needs to be taken care of by the taxpayer before payment of first installment i.e. before 15th June?
Krishna: Arjuna, the taxpayer shall calculate his estimated income for the current year and then calculate the tax liability on such income. Another simple way is that the taxpayer can add estimated increase in the current year to last year’s income tax and pay advance tax. For example, if in the previous year income tax of Rs.1 lakh is paid and a growth of 20% is estimated in business in the current year, then the total liability of income tax in the year will be 1.2 lakh and advance tax will have to be paid accordingly. Each businessman should pay the installments of advance tax after taking into consideration the growth/decline in his business. Further Investments, deductions, etc. allowable under income tax needs to be taken care off.
Arjuna: Krishna, what are the consequences if more or less amount of advance tax is paid?
Krishna: Arjuna, like the good work done by a person is always helpful in future, the same way more advance tax paid will not go in vain. Income Tax Department after checking our returns, refunds the excess amount of tax along with interest on it. If taxpayer pays less amount of tax, then he will have to pay heavy interest and he shall be answerable to the income tax notices.
Arjuna: Krishna, What are the consequences of non-payment of advance tax?
Krishna: Arjuna, if advance tax is not paid then interest at the rate of 1% per month will have to be paid and also he will have to go through enquiry. Also if default committed relates to huge amount of advance tax, then taxpayer may have to pay penalty. Now the Income Tax Department can get a lot of information due to computerization. The department sends advance tax notice and asks to pay tax payable. Further if regular installments of Advance Tax is paid, then sudden actions like Survey, etc can be avoided.
Arjuna: How should a taxpayer take decisions related to tax?
Krishna: Arjuna, in life we have to take the forward step after taking a look backwards i.e. after analyzing our past. Our past karma, decides our future. We have to take the decisions about our future after considering the present position of our life. Similarly, advance tax has to be paid as per the current year’s income and the decision regarding how much advance tax has to be paid shall be taken after analyzing the future growth. If good deeds are done in life, then we can face any kind of difficulty. In the same way, if advance tax is paid properly, then filing return will be easier. Adjusting profit to pay less tax so as to save some money can give happiness for a moment, but if enquiry is conducted then the person will have to face its consequences. Step by step climbing of mountain reduces risk of fatigue, like wise installment wise payment of tax leads to a state of relax. Thus Pay tax and relax. But many taxpayers feel that it is cumbersome to pay tax and thier funds get exhausted. Govt. should use these tax payments in a transparent way, this will give the taxpayer a sense of pride in paying taxes. Reward to the taxpayer is the proper utilization of his tax payments. Further there should be a discipline in payment of tax otherwise one should remember that “As you sow, so shall you reap”.