WHAT IS ADVANCE TAX?
Advance tax under Income Tax Act, 1961, otherwise called ‘pay-as-u-earn scheme’, refers to the payment of tax before the end of the financial year. The purpose or objective behind the implementation of advance tax provision was that the scheme ensures a constant flow of tax revenue throughout the year for meeting the government expenditure.
APPLICABILITY OF ADVANCE TAX
Advance tax becomes applicable when the tax liability exceeds Rs.10,000/- during a particular financial year and this applies to all taxpayers, salaried, freelancers and businesses. However, a resident senior citizen (i.e., an individual of the age of 60 years or above during the relevant financial year) not having any income from business or profession is not liable to pay advance tax even if the tax liability exceeds Rs.10,000/-.
DUE DATES FOR PAYMENT OF ADVANCE TAX
The payment of advance tax has to be made in instalments as per the due dates prescribed by the Income Tax department. The due dates are as given below:
|15th December||15th March|
|All taxpayers (other than who opted for presumptive taxation||15%||45%||75%||100%|
|Presumptive taxation*||–||–||–||100% (within 31st March)|
* Presumptive taxation – The presumptive taxation is a scheme introduced in the Income Tax Act, 1961, to provide relief to the small taxpayers from maintenance of regular books of account and getting the accounts audited and they can declare net income at a prescribed rate of the turnover. The limit of turnover for choosing this scheme is Rs. 2 crore for businesses and Rs. 50 lakh for professionals, and the minimum net profit to be declared is 8% for non-digital transactions (or 6% for digital transactions, whichever is applicable) and 50% respectively.
PENALTY FOR NON-PAYMENT OF ADVANCE TAX
The Income Tax Act, 1961 also contains provisions for imposing penalty on taxpayers in the event of default or short payment of advance tax, which are as below:
|Section||Method of calculation of interest|
(Penalty under this section is imposed for the default in payment of advance tax or if the advance tax paid by 31st March is less than 90% of the assessed tax)
|Interest is levied @ 1% per month or part of a month on the unpaid advance tax or shortfall in payment of advance tax from the 1st day of the assessment year (i.e., from 1st April of the year followed by the financial year) till the date of the final determination of the actual tax payable by the relevant authority.|
(Penalty imposed on shortfall in payment of advance tax instalments)
|Due date by 15th June||1% * 3 months * (15% of tax amount less tax deposited before due date)|
|Due date by 15th September||1% * 3 months * (45% of tax amount less tax deposited before due date)|
|Due date by 15th December||1% * 3 months * (75% of tax amount less tax deposited before due date)|
|Due date by 15th March||1% * 1 month * (100% of tax amount less tax deposited before due date)|
|However, penalty under section 234C will be imposed on the taxpayer only if the advance tax paid is below a prescribed threshold limit, which is as follows:|
On or before 15th
On or before
On or before
On or before 15th
|All taxpayers (other than who opted for presumptive taxation)||Less than 12% of advance tax payable||Less than 36% of advance tax payable||Less than 75% of advance tax payable||Less than 100% of tax payable|
|Presumptive taxation||–||–||–||Less than 100% of the tax payable (within 31st March)|
HOW TO CALCULATE ADVANCE TAX?
To calculate advance tax, the approximate income to be earned during the year has to be calculated, from which all estimated expenses related to income can be deducted. The advance tax paid in excess of total tax liability will be refunded and an interest of 0.5% per month or part of a month, from the date of payment of tax/penalty to the date on which refund is granted, will also be paid if the differential amount is more than 10% of the tax liability. The following example will illustrate the computation of advance tax and the penal interest arising on non-compliance:
|Net Taxable Income (Estimate)||15,00,000/-|
|Income Tax @ 30%||4,50,000/-|
|Secondary and higher education cess||18,000/-|
|Total tax liability||4,68,000/-|
|TDS/TCS/MAT(AMT) credit utilised||20,000/- (TDS)|
Advance tax instalments and penal interest:
Last date for
advance tax payment
of advance tax to be paid by last date
advance tax to be paid by last date (Rs.)
advance tax amount paid (Rs.)
Interest u/s 234C on
short payment of advance tax (Rs.)
|15-06-2019||15%||67,200/-||60,000/-||1% * 7,200 * 3 = 216/-|
|15-09-2019||45%||2,01,600/-||1,90,000/-||1% * 11,600 * 3 = 348/-|
|15-12-2019||75%||3,36,000/-||3,20,000/-||1% * 16,000 * 3 = 480/-|
|15-03-2020||100%||4,48,000/-||3,32,000/-||1% * 1,16,000* 1 = 1,160/-|
Assuming, the firm has paid the balance tax payable on 30th July while filing the income tax return.
90% of the assessed tax to be paid by 31st March = Rs. 4,03,200/-
Interest u/s 234B = 1% * (4,48,000-3,32,000) * 4 months = 4,640/-CONCLUSION
From the above discussion, it is very clear that the taxpayers need to pay advance tax in all the applicable cases and are supposed to know advance tax provisions and the penal provisions which will be attracted on non-compliance. Therefore, the taxpayers should know what they are supposed to pay under Income Tax laws, as the saying goes ‘ignorance of law is not an excuse’.
Co-authored by Roshini Jacob and CA Selastin Anthoniappan