Advance tax is known as Pay-as-you-earn. 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.
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. Therefore, for the current financial year the limit is Rs. 10,000.
Who is not liable for advance tax
Advance tax is not applicable in following cases;
- If assessee is a resident senior citizen aged above 60 years or more 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). However, they have to make 100% payment on or before 15th March of the same financial year.
All other assessee not falling under above two cases are liable to pay advance tax if tax liability for the financial year exceeds Rs 10,000.
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 happens when advance tax due date is missed by taxpayers. To know this we need to know 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).
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.
Deferment in payment of advance tax – 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.
Advance tax due dates
Applicable to Companies, Individuals and others
|Installments||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 installment||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 installment||On or before 15th December|
|Fourth||100% of the advance tax as reduced by the amount paid in first, second and third installments||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