PROVISIONS RELATED TO ADVANCE TAX
Before we get started with the provisions let us first talk a little about advance tax.
Advance tax is the income tax payable if your tax liability exceeds INR 10,000 in a financial year. Advance tax should be paid in the year in which the income is received. Hence, it is also known as the ‘pay-as-you-earn’ scheme.
Advance tax is applicable when an individual has sources of income other than his/her salary. For instance, if one is earning through capital gains, interest on investments, lottery, house property or business, the concept becomes relevant. Any rebate due fetches you an interest of 0.5% every month, or, 6% annually, as in the case of an income tax refund. However, if you don’t pay the advance tax on time, interest shall be charged 1% every month, or 12% a year.
Who should pay it?
If you are salaried, you need not pay advance tax as your employer deducts tax at source (TDS). However, you still need to file it if you have other sources of income, increasing your liability to more than INR 10,000. Professionals (self-employed) and businessmen will have to pay taxes in advance as, given their business income, the liability can be huge. The same goes for companies and corporate.
When to pay Advance Tax
For both individual and corporate taxpayers:
For taxpayers who have opted for Presumptive Taxation Scheme – Business Income
For taxpayers opting for presumptive taxation having business income from plying, hiring or leasing of goods carriages Section 44AE
How is interest calculated for non-payment of advance tax?
The Income Tax Act provides for charging of interest for non- payment/short payment/deferment in payment of advance tax which is calculated as below:
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INTEREST U/S 234A: For late or non furnishing of return, simple interest @ 1% for every month or part thereof from the due date of filing of return to the date of furnishing of return, on the tax as determined u/s 143(1) or on regular assessment as reduced by TDS/advance tax paid or tax reliefs, if any, under Double Tax Avoidance Agreements with foreign countries.
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INTEREST U/S 234B: For shortfall in payment of advance tax by more than 10%, simple interest @ 1% per month or part thereof is chargeable from 1st April of the assessment year to the date of processing u/s 143(1) or to the date of completion of regular assessment, on the tax as determined u/s 143(1) or on regular assessment less advance tax paid/ TDS or tax reliefs, if any, under Double Tax Avoidance Agreements with foreign countries.
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INTEREST U/S 234C: For deferment of advance tax. If advance tax paid by 15th September is less than 30% of advance tax payable, simple interest @ 1% is payable for three months on tax determined on returned income as reduced by TDS/TCS/Amount of advance tax already paid or tax relief, if any, under Double Tax Avoidance Agreement with forgiving contribution. Similarly, if amount of tax paid on or before 15th December is less than 60% of tax due on returned income, interest @ 1% per month is to be charged for 3 months on the amount stated as above. Again, if the advance tax paid by 15th March is less than tax due on returned income, interest @ 1% per month on the shortfall is to be charged for one month.
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INTEREST U/S 234D: Interest @ 0.5% is levied under this Section when any refund is granted to the assessee u/s 143(1) and on regular assessment it is found that either no refund is due or the amount already refunded exceeds the refund determined on regular assessment. The said interest is levied @ 0.5% on the whole or excess amount so refunded for every month or part thereof from the date of grant of refund to the date of such regular assessment.
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