Advance Tax liability : Calculation, Due dates, Interest
An assessee earns income during previous year and such income is assessed during the assessment year (AY), i.e. income of previous year (PY) 2019-2020 is assessed during AY 2020-21. However, under the ‘Advance Tax’ scheme, an assessee is required to pay income tax in respect of such income during the previous year itself on an estimated basis. Accordingly, for PY 2019-20, advance tax liability is payable during PY 2019-20.
When the Tax is paid in the same year in which the Income is earned, it is known as ‘Advance Tax’, that means ‘pay as you earn’. However, in the cases where the advance tax is not paid on time and tax is paid in the next financial year – it is called Self Assessment Tax.
Receipts from Advance Tax help the Government to receive a constant flow of tax receipts throughout the year so that the Government can incur its expenses timely rather than receiving all tax payments at the end of the year.
Is every person required to pay advance tax?
Section 208 of Income Tax Act, 1961 states that every assessee whether salaried, self employed, businessman etc is required to pay an advance tax if his/her tax liability is Rs 10,000 or more.
For Individuals with salary as the only 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 Citizen who does not have any business Income are also exempted from the payment of Advance Tax.
What is the quantum of Advance tax payable?
Advance Tax is payable in installments on different dates. For all taxpayers earning income from any source other than salary, due date of installments are as follows:
|Due date of installment||Amount payable|
|On or before 15th June of PY||Minimum 15% of the advance tax liability|
|On or before 15th September of PY||Minimum 45% of the advance tax liability|
|On or before 15th December of PY||Minimum 75% of the advance tax liability|
|On or before 15th March of PY||100% of the advance tax liability|
Where an assessee has declared his PGBP income in accordance with the provisions of presumptive taxation scheme as given u/s 44AD or 44ADA, such assessee is required to pay the entire tax as advance tax in one installment on or before 15th March of the relevant PY. Any tax paid on or before 31st March will be treated as advance tax.
How to calculate Advance Tax?
Section 209 requires an assessee to estimate his current year income to arrive at the Tax liability for the current year. Calculation of Advance tax liability is as follows:
|Tax liability for the current year (arrived on the basis of estimated income)||XXXX|
|Less: TDS/TCS for the current year only if actually deducted /collected||(XXXX)|
|Advance Tax liability||XXXX|
What is the Interest on Late Payment/ Non- Payment of Advance Tax?
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.
Interest under section 234C
|First installment : Interest is payable if advance tax paid till 15th June of PY is less than 12% of the advance tax liability||Rate : 1% per month|
Time period : 3 months
Amount : 15% of Advance Tax liability minus advance tax actually paid till 15th June
|Second installment : Interest is payable if advance tax paid till 15th September of PY is less than 36% of the advance tax liability||Rate : 1% pm|
Time period : 3 months
Amount : 45% of Advance Tax liability minus advance tax actually paid till 15th September
|Third installment : Interest is payable if advance tax paid till 15th December of PY is less than 75% of Advance Tax liability|| Rate : 1% pm|
Time period : 3 months
Amount : 75% of Advance Tax liability minus advance tax actually paid till 15th December
|Last installment : Interest is payable if advance tax paid till 15th March of PY is less than 100% of Advance Tax liability||Rate : 1% pm|
Time period : 1 month
Amount : 100% of Advance Tax liability minus advance tax actually paid till 15th March
Payment of Advance Tax in case of Capital Gains
Although Advance Tax is liable to be paid on all profits/incomes including Capital Gains, it is nearly impossible to estimate the capital gains that may occur in a year. In such cases, however, it is provided that if any such income arises after the due date of any installment, then the full amount of tax payable on such capital gain (after claiming exemption under section 54) shall be paid in the remaining due installments of Advance Tax. If the full amount of tax payable is so paid, then no interest will be levied on late payment.
The author of above article is Shruti Jain.