Simplifying Tax for C.A's and Taxpayers
A brief on Advance tax

A brief on Advance tax

June 15 is near. Discharge your advance tax liability

June 15 is approaching and so the deadline for taxpayers to pay advance tax as prescribed. Some changes have been made in the advance tax provisions as far as applicable to an Individual. In this article, we will discuss the various provisions relating to payment of advance tax by a taxpayer.

Liability to pay advance tax

Section 208 of the Income tax Act provides for the liability to pay advance tax.

So, if your estimated tax liability for the year is Rs. 10,000 or more, pay your tax in advance, in the form of “advance tax”.

Person not liable to pay advance tax

You are not liable to pay advance tax even if your tax liability is Rs. 10,000 or more if you belong to either of the following cases:

  1. A resident senior citizen not having any income from business or profession is not liable to pay advance tax. Senior citizen here means an individual of the age of 60 years or above during the relevant financial year.

Due dates for payment of advance tax

Advance tax is to be paid in different instalments. Earlier individuals were required to pay advance tax in three instalments on 15th September, 15th December and on 15th March of the financial year in the ratio of 30%, 30% and 40% respectively. But now the deadlines have been synchronized for every tax payer. The due dates for payment of different instalments of advance tax are as follows:

StatusBy 15th JunBy 15th SeptemberBy 15th DecemberBy 15th March
Non-corporate taxpayers till June 1, 2016NilUp to 30% of advance taxUp to 60% of advance taxUp to 100% of advance tax
Non-corporate taxpayers w.e.f June 1, 2016Up to 15% of advance taxUp to 45% of advance taxUp to 75% of advance taxUp to 100% of advance tax
Corporate taxpayers Up to 15% of advance taxUp to 45% of advance taxUp to 75% of advance taxUp to 100% of advance tax

Note 1: Any tax paid till 31st March will be treated as advance tax.

Note 2: If the last day for payment of any instalment of advance tax is a day on which the banks are closed, then the taxpayer should pay the advance tax on the immediately following working day [Circular No. 676, dated 14-1-1994].

Note 3: Earlier persons opting for the presumptive taxation scheme of section 44AD (who have opted for paying tax on assumed profit @ 8% on their gross turnover up to Rs. 2 Crore) was not liable to pay advance tax in respect of business for which the presumptive taxation scheme of section 44AD is adopted. But now, such taxpayers can pay whole of their advance tax by 15th March and need not pay three earlier instalments.

Computation of advance tax

The taxpayer who is liable to pay advance tax is required to estimate his current income and pay advance tax on his own account. In such a case, he is not required to submit any estimate or statement of income to the tax authorities.

In case some of your expected income or expenses have undergone a change, you can always re-estimate your income and adjust payments accordingly, before paying the next installment.

The Advance tax shall be computed as follows:

Income Under five heads of IncomeXXXX
Less: Brought forward losses and allowancesXXXX
Gross Total IncomeXXXX
Less: Chapter VI A deductionsXXXX
Estimated total incomeXXXX
Income Tax on Estimated Total IncomeXXXX
Add: Surcharge if any on above estimated incomeXXXX
Total tax payableXXXX
Less: Relief under Section 89XXXX
Tax liabilityXXXX
Add: 2% Education CessXXXX
Add: 1% Education cessXXXX
Total tax liabilityXXXX
Less: Relief of tax under Section 90,90A,91XXXX
Less: MAT credit under Section 115JAAXXXX
Less: TDS as in Form 16/16A and reflected in Form 26ASXXXX
Advance Tax liabilityXXXX

To illustrate

Mr. X is an architect. His estimated tax liability for the year amounts to Rs. 1, 00,000. He has paid advance tax of Rs. 15,000 by 15 June and Rs 30000 by 15th September. In the month of November one of his clients paid fee of Rs. 1,80,000 after deducting tax at source of Rs. 20,000 (Such fees of Rs. 1,80,000 was considered at earlier occasion for estimating the tax liability of taxpayer).

Since the estimated tax liability of the taxpayer is more than Rs. 10,000, he has to discharge his tax liability in the form of advance tax as follows:

Due dateBy 15th JuneBy 15th SeptemberBy 15th DecemberBy 15th March
Advance tax DueUp to 15% of advance taxUp to 45% of advance taxUp to 75% of advance taxUp to 100% of advance tax

Total Advance Tax payable
100000*15% i.e. 15000100000*45% i.e. 45000
100000*75% i.e. 75000

100000*100% i.e. 100000

Advance tax paid by June 15
15000150001500015000
Net advance tax liability for subsequent dates045000-15000 i.e. 30000
75000-15000 i.e. 60000
100000-15000 i.e. 85000
Advance tax paid by Sep 150300003000030000
Net advance tax liability for subsequent dates0060000-30000 i.e. 3000085000-30000 i.e. 55000
TDS credit in Nov0020000
20000
Revised Net advance tax liability for subsequent dates00
(100000-20000)*75%-30000-15000 i.e. 15000

(100000-20000)*100%-30000-15000 i.e. 35000
Advance tax paid by Dec 150015000
15000
Net advance tax liability as on Mar 1500020000

Mode of payment of advance tax

Applicable rule: Rule 125 of the Income-tax Rules, 1962

Payment of tax through the electronic payment mode using the internet banking facility of the authorized banks is mandatory for:

  1. A corporate taxpayer (i.e., a company)
  2. Taxpayers other than a company, who are required to get their accounts audited

Any other taxpayer can pay tax either by electronic mode or by physical mode i.e. by depositing the challan at the receiving bank.

How to pay advance tax

Advance tax can be paid by the taxpayer either on his own account or in pursuance of an order of the Assessing Officer.  Follow the steps mentioned below:

  1. Go to the tax information network of the Income Tax Department and select Challan 280. https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp

A screenshot is attached for your reference

admin-ajax

      2. Enter the personal information and select the assessee status as well as assessment year correctly.

      3. Choose “(100) ADVANCE TAX” if you are paying taxes during the financial year. Choose “(400)                  TAX ON REGULAR ASSESSMENT” if you get a demand notice from the Tax Department.

      4. You will be redirected to the net banking page. Double-check the information entered here and                    enter the income tax amount to be paid in the income tax field.

      5. Challan 280 will be generated after payment. You will be able to see details about your payment on           taxpayer’s counterfoil and BSR code and challan number on the right.

What will happen if advance tax liability is not discharged by 31st March of the financial year?

For any reason if you are not able to pay the advance tax before end of the financial year or there is short fall in your advance tax payment, all is not lost. The tax liability can still be discharged but with a cost which is interest. The same can be discharged after the year end but the payment gets another nomenclature, it is called self-assessment tax and not advance tax.

Interest on non-payment or short payment of advance tax or deferment of instalments of advance tax

Sec 234B and Sec 234C deals with interest on non-payment or short payment of advance tax or deferment of instalments of advance tax. Let us discuss the same in detail.

Section 234B provides for levy of interest for default in payment of advance tax. Interest is levied in following two cases:

  1. a) When the taxpayer has failed to pay advance tax though he is liable to pay advance tax; or
  2. b) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax.

Under section 234B, interest for default in payment of advance tax is levied at 1% per month or part of a month on the amount of unpaid advance tax. The nature of interest is simple interest.

Interest under section 234B is levied from the first day of the assessment year, i.e., from 1st April till the date of determination of income under section 143(1) or when a regular assessment is made, then till the date of such a regular assessment.

To illustrate,

Mr. A is a businessman. His tax liability as determined under section 143(1) is Rs. 28,400. He has not paid any advance tax but there is a TDS credit of Rs. 10,000 in his account. He has paid the balance tax on 31st July i.e. at the time of filing the return of income. Will he be liable to pay interest under section 234B, if yes, then how much?

In this case,

S.no.ParticularsAmount
1).Tax liability under Sec 143(1) 28400
2).Tax deducted at source10000
3).Assessed tax (1-2)18400

Since the assessed tax exceeds Rs 10000, he is liable to pay advance tax. But he has not paid any advance tax and hence, he will be liable to pay interest under section 234B.

Interest under section 234B will be:

S.no.ParticularsAmount
1).Period of interest (Interest from first day of assessment year i.e. April 1 to date of payment of advance tax i.e. July 31)4 months
2).Amount for interest (Unpaid tax liability)18400
3).Rate of interest per month1%
4).Interest Under Sec 234B (2*3*1)i.e. 18400*1%*4736

Sec 234C provides for levy of interest for default in payment of instalment(s) of advance tax. Interest under section 234C is levied, if advance tax paid in any instalment(s) is less than the required amount. In specific, interest is applicable as specified in the table:

DescriptionRate of InterestPeriod of InterestAmount on which Interest is calculated

If Advance Tax paid on or before June 15 is< 12% of the Amount*
Simple interest @1% per month3 months15% of Amount* less tax already deposited before June 15
If Advance Tax paid on or before September 15 is< 36% of the Amount*Simple interest @1% per month3 months45% of Amount* less tax already deposited before September 15
If Advance Tax paid on or before December 15 is < 75% of the Amount*Simple interest @1% per month3 months
75% of Amount* less tax already deposited before December 15
If Advance Tax paid on or before March 15 is < 100% of the Amount*Simple interest @1% per month-
100% of Amount* less tax already deposited before March 15

*Amount = Tax on total income less TDS less relief u/s 90 or 91 less tax credit u/s 115JD

# the same provision has been made applicable for non-corporate taxpayers w.e.f June 1, 2016

Note1: W.e.f from June 1, 2016 Persons opting for the presumptive taxation scheme of section 44AD (who have opted for paying tax on assumed profit @ 8% on their gross turnover up to Rs. 2 Crore) can pay whole of their advance tax by 15th March and need not pay three earlier instalments. However if they fail to pay it by 15th March and pay it after 15th March but before 31st March they will have to pay interest @ 1% for one month under Sec 234C

Note2: Interest under section 234C is not levied, if, the shortfall in payment of advance tax is due to:

  • failure to estimate the amount of capital gains or income referred to in section 2(24)(ix) (i.e. winning from lotteries, crossword puzzle, etc.) and
  • The taxpayer pays the required advance tax on such income as a part of immediate following instalments or till 31st March, if no instalment is pending.

To illustrate,

Mr. XYZ is running a garments shop. Tax liability of Mr. XYZ is Rs. 38,400. He has paid advance tax as given below:

Rs 5000 on 15 June, Rs. 10,000 on 15th September, Rs. 5,000 on 15th December, Rs. 18,400 on 15th March.

Will he be liable to pay interest under section 234C, if yes, then how much?

Since his tax liability is not less than Rs 10,000, he is liable to pay advance tax. His tax liability and interest is present in the table below:

StatusBy 15th June By 15th SeptemberBy 15th December
By 15th March
Deadline for advance tax and quantum
15% of advance tax i.e. 5760
45% of advance tax i.e. 1728075% of advance tax i.e. 28800
Tax paid on 1 instalment5000---
Shortfall760---

Interest Under Sec 234C
#800*1%*3=24---

Tax remaining for next instalment after 1st instalment
-(17280-5000) i.e. 12280(28800-5000) i.e23800
(38400-5000) i.e. 33400
Tax paid on 2 instalment-10000--
Shortfall
-2280--
Interest Under Sec 234C-#2300*1%*3=6--

Tax remaining for next instalment after 2nd instalment
--
(23800-10000) i.e. 13800
(33400-10000) i.e. 23400
Tax paid on 3 instalment--5000-
Shortfall--(13800-5000) i.e.8800
Interest under Sec 234C
--
8800*1%*3= 264
Tax remaining for next instalment after 2st instalment---(23400-5000) i.e. 18400
Tax paid on 3 instalment---18400
Shortfall---0

# Rounded off as per rule 119A.

Payment of advance tax in pursuance of an order of the Assessing Officer

If taxpayer fails to pay advance tax (or advance tax paid is lower than the required amount) and he has already been assessed by way of regular assessment in respect of the total income of any previous year, then the Assessing Officer may pass an order under section 210(3) requiring him to pay advance tax on his current year’s income (specifying the amount of instalments in which tax should be paid). Such an order may be passed during the financial year, but not later than the last day of February.

On receipt of the notice from the Assessing Officer to pay advance tax, if the taxpayer’s estimate is lower than the estimate of the Assessing Officer, then the taxpayer can submit his own estimate of current income/advance tax and pay tax accordingly. In such a case, he has to send intimation in Form No. 28A to the Assessing Officer.

Alternatively, if the advance tax on current income as per own estimate of the taxpayer is likely to be higher than the amount estimated by the Assessing Officer, the taxpayer shall pay such higher amount as advance tax in accordance with his own calculation. In such a case, no intimation to the Assessing Officer is required.

The Assessing Officer can revise his order issued to the taxpayer to pay advance tax (as discussed above) under section 210(4). Such revision can be done, if subsequent to the passing of an order to pay advance tax but before 1st March of the relevant financial year a return of income in respect of any later year has been furnished by the taxpayer or any assessment for any later year has been completed at a higher figure. On receipt of such order, the procedure to be followed by the taxpayer will be same as discussed earlier.

Sources:

www.incometaxindia.gov.in

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