What happens when Advance tax due date is missed

To ensure a steady flow of income for the government, certain type of tax payers in India are required to pay tax in advance instead of paying at the end of the year. Advance tax is also known as Pay-as-you-earn.

A taxpayer will be liable to pay advance tax in cases where his tax liability for the financial year is Rs 10,000 or more. This limit was Rs 5,000 up to assessment year 2008-2009. From Assessment year 2009-2010, limit has been increased from Rs 5,000 to Rs 10,000.

advance tax

Advance tax provisions will not be applicable in following cases;

  • If assessee is a resident senior citizen aged above 60 years and not having any income from business or profession. This means, if the senior citizen is non resident or having income from business or profession then he will be liable to pay tax in advance to government of India.
  • Taxpayers taxed under section 44AD (presumptive taxation).

All other assessee not falling under above two cases are liable to pay advance tax if tax liability exceeds Rs 10,000 for the financial year.

Tax department has specified due dates and portion of whole advance tax to be paid by corporate and non-corporate assesses.

Now the question is what will happen if advance tax due date is missed by corporate and/or non-corporate taxpayers. To know this we need to discuss two sections of Income tax act 1961 i.e. 234B and 234C.

Here are the two situations in which interest is applicable;

  • Assessee has paid advance tax but amount paid is less than 90% of the actual assessed tax (section 234B).
  • Tax liability of Assessee for the financial year is Rs 10,000 or more and he has not paid advance tax (section 234C).

Where advance tax paid is less than 90% of the assessed tax – Section 234B

If advance tax paid or failed to pay during the whole year is less than 90% of the total assessed tax then assessee is liable to pay simple interest at the rate of 1% per month under section 234B.

Simple interest at the rate of 1% will be calculated under section 234B from 1st April of the assessment year till the month when the taxes are paid in full or where a regular assessment is made to the date of such regular assessment.

As discussed in our earlier article, advance tax is required to be paid in installments by both corporate and non-corporate assessee.

Deferment in payment of advance tax in installments – Section 234C

In cases where there is a deferment in payment of such installments, assessee is liable to pay simple interest at the rate of 1% per month for the period of 3 months for each time the due date is missed under section 234C.

For last installments which is payable by 15th march, simple interest under section 234C will be calculated for 1 month at the rate of 1% per month.

Interest under section 234C will not be levied if shortfall in the payment of advance tax is due to underestimate or failure to estimate the amount of capital gains or incomes under section 2(24)(ix) which includes lottery income, gambling income. Provided, taxpayer has  paid the whole of the amount of tax payable in respect of such income as a part of the remaining installments of advance tax which are immediately due or if no installment is due then such tax is paid before the end of the financial year.

In addition to section 234B and 234C interest, assessee is also liable to pay simple interest under section 234A at the rate of 1% per month if payment of tax is done after expiry of last date of filing of return of income. Section 234A interest will be calculated till the time taxes are paid.

Learn How to calculate interest under section 234B and 234C for non payment of short payment of advance tax.

Due dates of advance tax for your reference

Applicable to Corporate Assessee

Instalments Amount payable Due date of payment
First Not less than 15% of the advance tax payable On or before 15th June
Second Not less than 45% of the advance tax payable as reduced by the amount  paid in first instalment On or before 15th September
Third Not less than 75% of the advance tax payable as reduced by the amount  paid in first and second instalment On or before 15th December
Fourth 100% of the advance tax as reduced by the amount paid in first, second and third instalments On or before 15th March

 

Applicable to Non-Corporate Assessee

Instalments Amount payable Due date of payment
First Not less than 30% of the advance tax payable On or before 15th September
Second Not less than 60% of the advance tax payable as reduced by the amount  paid in first instalment On or before 15th December
Third 100% of the advance tax as reduced by the amount paid in first, and second instalments On or before 15th March

If last day for payment of above installments is a day on which the receiving bank is closed, the assessee can make the payment on the next immediately following working day, and in such cases, the mandatory interest under section 234B and 234C would not be charged.

Assessed tax = total tax liability for the year less TDS less relief claimed under section 90/91 less relief of tax claimed under Section 90A less tax credit under Section 115JAA/115JD

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