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Paid your advance tax? If not, pay now!

Let us dive into the intricacies of advance tax

 
 

Advance tax payment date is approaching. Next and last installment for payment of advance Income tax is 15th March 2021. Let us have a look at due dates for payment of advance tax.


Due Dates for payment of Advance Tax  

For both individual and corporate taxpayers

Due Date

Advance Tax Payable

On or before 15th June

15% of advance tax

On or before 15th September

45% of advance tax less advance tax already paid

On or before 15th December

75% of advance tax less advance tax already paid

On or before 15th March

100% of advance tax less advance tax already paid

For taxpayers who opt for Presumptive Taxation Scheme under section 44AD & 44ADA – Business Income

Due Date

Advance Tax Payable

On or before 15th March

​100% of advance tax

Any tax paid till 31st March will be treated as advance tax.


What is Advance Tax?

Advance tax is a mechanism to collect tax as early as income is earned. Advance tax is Income Tax to be paid in advance instead of lump sum payment at year-end. These payments have to be made in installments as per above due dates provided by the income tax department. Since advance tax is advance income tax, it is calculated after considering any TDS or TCS credits.


Who should pay Advance Tax?  

If total tax liability is Rs 10,000 or more in a financial year only then you have to pay advance tax. Advance tax applies to all taxpayers, salaried, freelancers, and businesses. Senior citizens, who are 60 years or older, and do not run a business, are exempt from paying advance tax. In most of the cases, salaried taxpayers get their salary after deduction of tax by the employer and therefore they are not required to deposit advance tax. However, if they do not declare their income from other sources to their employer, TDS is not deducted by the employer on such income and if the difference of tax on such income and tax deducted exceeds Rs. 10,000, a salaried taxpayer also becomes liable to pay advance tax.

It is advisable to consult your chartered accountant or tax consultant to assess your advance tax liability.

Whenever you sell a house property, shares, mutual funds or any other capital assets, capital gain taxes are attracted. In such cases, advance tax is to be paid in the quarter in which such gain is earned and the total tax amount on such gain is to be paid along with the advance tax installment of that quarter.

What are the consequences of not depositing advance tax?

Non-payment of advance tax will result in levy of interest under 234B and 234C of the Income tax Act, 1961.

Interest under section 234C for default in payment of instalment(s) of advance tax is charged at 1% per month or part of a month. The nature of interest is simple interest. In other words, the taxpayer is liable to pay simple interest @ 1% per month or part of a month for short payment/ non-payment of individual instalment(s) of advance tax.

Interest under section 234C is levied for a period of 3 months, in case of short fall in payment of 1st, 2nd and 3rd instalment and for 1 month, in case of short fall in payment of last instalment.

Interest under section 234B is levied in following cases:

(a) When the taxpayer has failed to pay advance tax; or

(b) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax.

Under section 234B, interest for default in payment of advance tax is levied at 1% per month or part of a month. The nature of interest is simple interest. In other words, the taxpayer is liable to pay simple interest at 1% per month or part of a month for default in payment of advance tax.

So, gear up for payment of advance tax for this quarter on 15th March 2021. Plan early so that there is no last-minute rush. Also, you have an option to pay your assessed tax before 31st March 2021.

You may contact us for any assistance.


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