Even as you race to take advantage of the extended September 7 deadline for filing tax returns, close on its heels comes the due date for advance tax payments.
You need to pay the first instalment of advance tax for the current financial year by September 15, if your tax liability warrants such a payment. Else, interest/penalty may be slapped later on.
According to the Income Tax Act, if you expect your tax liability over and above TDS to exceed ₹10,000 during a year, you must pay advance tax.
If salary is your only source of income, you will most likely not be required to pay advance tax as monthly TDS cuts might take care of your entire tax dues.
But if you have other sources of income along with your salary, you may fall in the advance tax net. Here’s how.
While your office may promptly cut taxes every month based on salary income alone, you may have other income such as rent from a house that you have let out, interest income from savings bank account/fixed deposit, capital gains, etc, some of which may not even be subject to TDS. If you haven’t declared all of these at your workplace, your employer could be deducting lower TDS than what is necessary.
This may result in a liability to pay advance tax on your part.
If TDS was deducted at 10 per cent, but you fall in the 20 per cent or 30 per cent tax bracket, you may have to pay advance tax if the additional tax liability exceeds ₹10,000.
This can happen to salaried employees as well as professionals or those running proprietary businesses.
Calculation and payment To project your likely tax liability for a year and check if you need to pay advance tax, you can take the help of your auditor who normally helps file your returns.
Even if you are using e-filing intermediary websites to prepare your returns, you can seek their guidance online.
Many have year-round advisory services that you can sign up for.
If you are a bit tax savvy, you can also use online calculators. One such calculator is available at http://www.incometaxindia. gov.in/\Pages/tools/advance-tax- calculator.aspx .
For individuals, advance tax must be paid in three instalments. Up to 30 per cent of the amount due must be paid by September 15, up to 60 per cent by December 15 and up to 100 per cent by March 15 of the financial year to which your income relates.
What if you skip advance tax entirely? Say, your tax liability after all TDS cuts is ₹30,000. You must pay at least ₹9,000 by September 15.
If not, a 1 per cent interest per month will be charged on the shortfall until the next instalment, that is, for three months.
So the interest amount here works out to ₹9,000*1/100*3 = ₹270. If you don’t pay ₹18,000 (60 per cent of ₹30,000) by December 15, a 1 per cent per month interest will be charged on the shortfall until March 15. Interest now comes to 18000*1/100*3 = 540. If you don’t pay the third instalment too, interest on ₹30,000 will be calculated for a month — 30,000 *1/100*1 = ₹300. In all, interest payable totals ₹1,110. This is calculated under Section 234C of the Income Tax Act.
In addition, irrespective of whether you have paid advance tax or not, if the total advance tax paid (including TDS) is less than 90 per cent of the tax liability at the end of the financial year (in this case, March 2016), then the interest under Section 234B is payable.
This is calculated at the rate of 1 per cent per month and is payable on the shortfall from April 1, 2016 till the month in which you file returns and make the payment.
In the above example, assuming you file your return in July 2016, you will have to pay ₹30,000*1/100*4 = ₹1,200 additionally.
These amounts need to be paid along with self-assessment tax when filing your return next year. Instead, if you do pay advance tax and it turns out to be excessive, you can claim a refund later on.
Remember to file your return before the due date though, as other interest/penalty provisions will be triggered after that.