Advance Tax Payment: Due Dates and Interest on Late Payment

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If the Income Tax Liability of any taxpayer is more than Rs. 10,000 in a financial year, then he is liable to pay such tax in installments during the year itself rather than paying this tax at the end of the year. This tax which is payable during the year is called “Advance Tax” or “pay as you earn tax” as the tax is liable to be paid at the time the income is earned i.e. during the year itself rather than paying this tax at the end of the year.

Advance Tax receipts help the Govt. to receive a constant flow of tax receipts throughout the year so that the Govt can incur its expenses timely rather than receiving all tax payments at the end of the year. Advance Tax is liable to be paid by all assesses like Salaried, Self Employed, Businessman etc. before the filing of Income Tax Return. An Income Tax Return cannot be filed till the income tax is fully paid.

For Individuals with Salary as the sole source of income, Advance Tax would be taken care of by the TDS deducted by the employer at the time of payment of salaries as reflected in Form 16 and thus there would hardly be any Advance Tax payable. Senior Citizens not having any Business Income are also exempted from the payment of Advance Tax (Introduced by Budget 2012)

For all taxpayers earning income from any source other than salary, Advance Tax is payable in installments as explained below.

What is the due date for Payment of Advance Tax?

1. For taxpayers filing ITR under Presumptive Tax Scheme of Sec 44AD & Sec 44ADA

Due Date of Installment Amount Payable
On or before 15th Mar 100% of the Advance Tax

 

2. For all other categories of taxpayers earning income from any source (Eg: Salary, Rent, Business/ Profession, Capital Gains, Interest etc)

Due Date of Installment Amount Payable
On or before 15th June 15% of the Advance Tax
On or before 15th Sep 45% of the Advance Tax
On or before 15th Dec 75% of the Advance Tax
On or before 15th Mar 100% of the Advance Tax

To understand more about Advance Tax, you may also refer this video wherein the Tax Expert is answering user queries on a popular news channel:-

 

 

The above mentioned schedule would not apply to those taxpayers who have opted for the Presumptive Scheme of Taxation under Section 44AD or Section 44ADA. For taxpayers opting for this scheme, they would not be required to comply with the above mentioned schedule. The only advance tax due date deadline applicable to such taxpayers would be 15th March and such taxpayers would be required to pay 100% of their Tax liability by 15th March.

Computing the exact advance tax liability sometimes gets very difficult and therefore the Income Tax Dept has released an Income Tax Calculator which is free to use by everyone. This calculator not only computes the Tax Payable but also the exact component of Advance Tax to be paid before the specified due dates.

A demo tutorial video of the Advance Tax Calculator is shared below:

 

Payment of Advance Income Tax is to be made through Challan No. 280 by selecting Advance Tax (100) as the type of payment as shown below:-

advance-tax

How to calculate of Advance Tax?

Advance Tax is calculated by estimating the current year income and then applying the tax rates as per the Income Tax Slabs in force. This estimate shall be computed by the assessee for his own use as this is not required to be submitted to the Income Tax Dept.

The Advance Tax shall be computed as under:

  Income under the 5 Heads of Income xxx
(Less) Brought Forward Losses and Allowances xxx
(=) Gross Total Income xxx
(Less) Chapter VI-A Deductions xxx
(=) Estimated Total Income xxx
  Income Tax on Estimated Total Income xxx
(Add) Surcharge (if any) on the above Estimated Income xxx
(=) Total Tax Payable xxx
(Less) Relief under section 89 xxx
(=) Tax Liability xxx
(Add) 2% Education Cess xxx
(Add) 1% SHEC xxx
(=) Total Tax Liability xxx
(Less) Relief of tax u/s 90,90A,91 xxx
(Less) MAT Credit u/s 115JAA xxx
(Less) TDS as shown in Form 16/Form 16A and reflected in Form 26AS xxx
(=) Advance Tax Liability xxx

 

Payment of Advance Tax in case of Capital Gains/ Casual Income

Although Advance Tax is liable to be paid on all incomes including Capital Gains, it is practically not possible to estimate the Capital Gains which may arise in an year.

Therefore, in such cases, it is provided that if any such income arises after the due date of any installment, then, the entire amount of tax payable on such capital gain (after claiming exemption under section 54) shall be paid in remaining installments of Capital Gains which are due. If the entire amount of tax payable is so paid, then no interest on late payment will be levied.

Similarly, in the following cases as well – Advance Tax shall be paid in the remaining installments of Advance Tax:-

  1. Winning from Lotteries, Game Shows, Online Gaming etc
  2. Income under the head “Business or Profession” in cases where the income accrues and arises under the said head for the 1st time as the business might have started after certain cue dates of payment of Advance Tax
  3. Divident received in excess of Rs. 10,00,000 and taxable under Section 115BBDA(1)

What is the Interest on Late Payment of Advance Tax?

Interest on late payment of Advance Tax is applicable as follows

  1. Interest under section 234C – Interest @ 1% per month is payable if the tax is not paid as per the above schedule i.e. for Deferment in Installments of Advance Tax
  2. Interest under section 234B – Interest @ 1% is payable if 90% of the tax is not paid before the end of the financial year i.e. for Default in Payment of Advance Tax

For computing Interest u/s 234A/B/C and any other Interest, Income Tax shall be rounded off to nearest hundred and fraction of hundred shall be ignored

Interest under section 234C for Deferment of Payment of Tax

Interest under section 234C is liable to be paid @ 1% per month if

(a) Advance Tax paid on or before 15th June     <     15% of the Tax Due on Returned Income
    OR  
(b) Advance Tax paid on or before 15th Sept     <     45% of the Tax Due on Returned Income
    OR  
(c) Advance Tax paid on or before 15th Mar     <   75% of the Tax Due on Returned Income
    OR  
(d) Advance Tax paid on or before 15th Mar <   Tax Due on Returned Income
    OR  
(e) No Tax has been paid by the Assessee    

Note: Tax Due on Returned Income means the Tax on Total Income declared in

  Income Tax Return xxx
(Less) Relief of Tax u/s 90 xxx
(Less) Relief of Tax u/s 90A xxx
(Less) Relief of Tax u/s 91 xxx
(Less) MAT Credit u/s 115JAA xxx
(Less) TDS Paid xxx
  (=) Tax due on Returned Income xxx

No Interest would be levied in case the assessee is having Income under head “Profits and Gains of Business or Profession” for the first time.

Computation of Interest for Late Payment of Advance Tax u/s 234C

(a) Rate 1% per month simple interest
  Period 9 Months
  Amount 15% of the “Tax due on Returned Income”
    (Less)   Advance Tax paid on or before 15th June
(b) Rate 1% per month simple interest
  Period 6 Months
  Amount 45% of the Amount Due on Returned Income
    (Less) Advance Tax Paid on or before 15th Sept
(c) Rate 1% per month simple interest
  Period 3 Months
  Amount 75% of the Amount Due on Returned Income
    (Less) Advance Tax Paid on or before 15th Dec
(d) Rate 1% per month simple interest
  Period 3 Months
  Amount Tax Due on Returned Income
    (Less) Advance Tax paid on or before 15th March

Interest under section 234B for Default in Payment of Tax

Interest @ 1% per month is payable if

(a) Advance Tax Paid by the Assessee during the Previous Year <     90% of the Assessed Tax
    OR  
(b) No Advance Tax is paid by the Assessee    

Note: Assessed Tax means

  Tax determined u/s 143(1) or on Assessment u/s 143(3)/144/147/153A xxx
(Less) Relief of Tax u/s 90 xxx
(Less) Relief of Tax u/s 90A xxx
(Less) Relief of Tax u/s 91 xxx
(Less) MAT Credit u/s 115JAA xxx
(Less) TDS/TCS xxx
(=) Assessed Tax xxx

Other Relevant Points regarding Advance Tax

      • In case Advance Tax paid by the Assessee is more than his actual Income Tax Liability, he can claim Refund of Income Tax by furnishing the details of tax deposited in the Income Tax Return. 
      • If the Tax is paid in the same year in which the Income is being earned – it is called Advance Tax. However, in case the advance tax is not paid on time and is paid in the next financial year – it is called Self Assessment Tax.
      • Online Payment of taxes is compulsary for all companies as well as for taxpayers liable to tax audit. All other taxpayers can either deposit the tax online or physically through bank branches through Challan No. 280.
      • After making the payment of 1st or 2nd or 3rd installment of advance tax (as the case may be), if there is a change in the tax liability, then the taxpayer can revise the quantum of advance tax in the remaining installments and pay the tax as per revised estimates.
      • To help taxpayers properly compute their Advance Tax liability and the interest applicable thereon, the Income Tax Dept has also prepared an online advance tax calculator which can be accessed through this link – http://www.incometaxindia.gov.in/pages/tools/advance-tax-calculator.aspx
      • The advance tax collections also help the Govt in ascertaining the growth of the economy as in increase in the Advance Tax numbers indicates that the economy is growing and vice-versa.
      • 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]. In such cases, Interest under Sec 234B & Sec 234C would not be charged.
      • A person may increase or decrease the amount of advance tax payable in the remaining installments to accord with his estimate of his current income and advance tax payable thereon. However, interest would be levied in this case if there is any late payment.

Payment of Advance Tax in pursuance of an order by the Assessing Officer

If, despite the legal obligation cast upon the taxpayer, he fails to pay advance tax (or the advance tax is lower than the correct amount), the assessing officer may pass an order requiring him to pay advance tax on his current year’s income (specifying the installments in which the tax has to be paid).

Such an order must be passed during the financial year but not later than the last day of February.

On receipt of notice from the assessing officer to pay advance tax the assessee cab submit his own estimate of lower current income/ advance tax and pay tax accordingly. In such a case, he has to send an intimation in Form No. 28A to the Assessing Officer.

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

Karan is CA by Qualification with the rare distinction of being awarded All India Rank 22. He is also the founder of this website and is an expert in helping people save Taxes legally. He can be reached by booking an appointment for Tax Advisory Service.