Due date to pay advance tax is round the corner

March 31 is an important date as it marks the deadline for many compliances under the Income Tax Act. For advance tax, the D-day is earlier still.

One has to fulfil advance tax obligations by March 15 of the financial year. So, act quickly as you have a little more than a week to clear your advance tax dues for FY20.

Fundamentals

Advance tax, as the name suggests, requires the payment of your annual taxes in advance. The intent of the tax department is to collect the taxes as you earn.

You become liable to pay advance tax if your estimated tax liability for the current fiscal is ₹10,000 or more. An NRI is also liable to pay advance tax if his/her estimated tax liability on income accruing in India is ₹10,000 or more. Exemption from advance tax payments is available only to senior citizens (60 years or older) with no business or professional income.

Note that while calculating the tax liability for advance tax purposes, the amount of tax deducted or deductible at source (TDS) on your income should be reduced from the annual tax liability. For instance, if you are an employee earning a salary, you are liable to pay advance tax only if your annual tax liability after reducing TDS deductible by your employer is more than ₹10,000.

You can use various online tools to calculate your advance tax liability. For example, the Income-Tax Department website has an advance tax calculator under its ‘Tax Payer Services’ domain.

Quarterly payment

Advance tax has to be paid quarterly and the I-T Department has fixed four due dates — June 15, September 15, December 15 and March 15 — by which, respectively, at least 15 per cent, 45 per cent, 75 per cent and 100 per cent of the total advance tax liability for the fiscal must be paid cumulatively.

Here’s an example. Say, your estimated tax liability for FY20 is about ₹40,000 (after TDS). You are liable to pay at least ₹6,000 (15 per cent of ₹40,000) by June 15, 2019, ₹18,000 (45 per cent) by September 15, 2019, ₹30,000 (75 per cent) by December 15, 2019, and ₹40,000 by March 15, 2020.

The amount of advance tax payable in one instalment would be the tax dues minus taxes already paid in the previous instalments. Here, advance tax to be paid by March 15 would be ₹10,000 (₹40,000-₹30,000, assuming the earlier tax dues were paid).

Meanwhile, if your income estimates change during the course of the year, so does your income tax liability. In such cases, necessary adjustments to the advance tax payments can be made in the remaining instalments. Excess advance tax paid over your actual tax liability can be claimed as refund in your income-tax return.

Note that the above due dates are not applicable to those who have opted for the presumptive taxation scheme under Section 44AD or 44ADA - for small taxpayers carrying on business or profession. They just need to pay 100 per cent of the advance tax by March 15 of the fiscal.

Interest on delayed payments

If the stipulated advance tax amount is not paid by the specified due dates, then the assessee shall be liable to pay simple interest at the rate of 1 per cent per month for three months on the amount of the shortfall starting from the month in which the advance tax is due. This is per Section 234 C of the I-T Act.

In the above example, if you have not paid your advance tax due of ₹6,000 by June 15, you will be liable to pay an interest of ₹180 (1 per cent of ₹6,000 x 3). If you do not pay your dues in September, too, the interest charges will be ₹180 plus ₹540 (interest on ₹18,000 for three months), totalling to ₹720. The same formula of interest calculation will be applied for subsequent defaults.

But if the amount due in March is not paid, interest on the shortfall will be charged only for a month.

However, interest under Sec 234B is calculated at the rate of 1 per cent per month and is payable on the shortfall from April 1 of the assessment year (April 1, 2020) till the date of payment. But this is only 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 the above example, assuming you haven’t paid any advance tax but pay your whole total tax liability when you file your return in July 2020, you will have to pay 1 per cent of ₹40,000 x 4 = ₹1,600, under Section 234 B, in addition to interest under Section 234 C.

Besides, you will be liable to pay penalty if the assessing officer has reason to believe your statement of advance tax is not true, and is falsely furnished.

But, what if your income estimation is wrong due to the non-consideration of lottery gains or capital gains in case of sale of an asset or first time income from PGBP (profits and gains from business and profession)? Do not worry, the IT Act allows exemptions from penalty and interest on shortfall of income reported in such cases.

Note that, interest under section 234 C will not be attracted if the advance tax paid by you before June 15 and September 15 is at least 12 per cent and 36 per cent, respectively, of the estimated annual tax liability.

Check and document

Once the advance tax is paid, you can check the status of your payment using an online service called ‘Challan Status Enquiry’ on the NSDL website (http://www.tin-ns​dl.com). You can also check your tax credit in Form 26AS from your e-filing account at www.incometaxindiaefiling.gov.in. It can take up to 10 days to reflect the payment made, in your Form 26AS.

It is prudent to keep the receipts safely as proof of payment of advance tax.

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