All you wanted to know about advance tax

A coffee time conversation between two colleagues leads to an interesting explainer on the rules of taxation.

Vina: Last week, I saw you juggling with tax calculations. What have you been up to?

Tina: Yeah! I was in a rush to make the tax payment for FY21, within the deadline.

Vina: But why? Didn’t you notice the due dates for filing returns for FY21 have been pushed to September 30, 2021 from July 31st?

Tina: I am well aware of that, Vina. But I guess you missed the crux here.

Vina: Oh! I see the grin and know what it means. Please don’t get started on how one should start filing returns early to avoid last-minute rush.

Tina: While that still stands true, I was trying to bring to your notice the fact that the due dates for advance tax installments have not been changed.

Vina: What’s advance tax now? Care to explain?

Tina: If your tax liability in any financial year works out to ₹10,000 or more, then you need to pay it in advance — in four installments.

This, however, does not apply to taxpayers aged 60 and above who do not earn any income under the head ‘profits and gains of business or profession’.

Vina: Oh lord. Then this definitely applies to me too.

Tina: For FY21, such taxpayers should have paid at least 15 per cent of their tax liability on or before June 15, 2020.

And at least 45 and 75 per cent, should have been paid by September 15 and December 15 2020, respectively. The last day for paying the entire tax amount is March 15, 2021.

Vina: Then, I have clearly passed the deadline for all my tax installments. What happens now?

Tina: You will now be required to pay interest on any shortfall under section 234 B and 234C of the Income Tax Act, at the rate of one per cent per month (under each section), for every month of delay. So if you file your returns late due to extension of the deadline and decide to pay all the taxes due then only, the charges under 234 B and C will go up.

Vina: I better act fast then.

Tina: Rightly said. But do remember that taxes deducted or collected at the source of income (TDS/TCS) are also forms of paying taxes in advance.

Vina: That should save me some skin. But this seems very tricky to me.

How am I expected to assess my yearly income, with such accuracy so much in advance?

Tina: Valid point, Vina. The taxman does allow room for such miscalculations.

For the first two installments (i.e. June and September 15), no interest shall have to be paid, if at least 12 per cent (instead of the required 15 per cent) and 36 per cent (instead of 45 per cent), of the advance tax is paid by the respective due dates.

Vina: Ok. Though I have again missed the June 15 deadline for this year, I will remember to be prompt with the rest of the instalments at least.

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