Mastering in Advance Tax

Introduction

Almost two months have passed for the FY 2024-25 and the first installment of advance taxes is due next month. Understanding the complexities of advance tax are crucial for many taxpayers in India, especially who having substantial income from business or professional. In the current scenario, the most significant share of the revenue for the government is collected by Income tax. Therefore, for the Indian Government as well, the collection of taxes is very significant hit to our Indian economy. One such tax is the advance tax. In this article, we tried to explore and discuss various aspects of advance tax in India like what it is, when it applies, and how to calculate with examples and pay it timely to avoid any unnecessary interest or penalties.

Meaning of Advance Tax

In simple words, an advance tax is the income tax which we have paid in the financial year in which we earn it. Generally, we pay our income tax to the government in the assessment year, after calculating the financial data of previous financial year, but here government wants tax in immediately preceding the A.Y (i.e.P.Y). It is "Pay as you earn" or paid in the year in which income is earned and in other words, the Income tax which we paid in advance before assessment year is called advance tax.

Every assessee shall estimate his income and his tax liability for advance tax is 10,000 or more for any prior year in line with the provisions of Section 207 of the Income Tax Act of 1961, and the income tax so estimated shall be paid advance tax specified u/s 211 of the Income Tax Act of 1961 except Resident Senior citizen not having income under business or professional shall not be required to pay advance tax.

When Advance Tax liabilities arise

When assessee calculates estimation base current income and estimated income tax amount is Rs. 10,000 or higher, than pay the advance tax, even new regime or old regime it does not make any difference on the provision of advance tax it will depend on liability of income tax. For determine Advance tax deduct TDS, TCS, MAT/AMT credit, foreign Tax credit relief u/s 89 credits to arrive at Advance Tax liability. Except in cases where the Resident Senior citizen not having income under business or professional shall not be required to pay advance tax. For the purpose of determining the tax liability, the Health education cess and surcharge must also be taken into account. Those who choose the presumptive scheme (44AD, 44ADA) under the Income Tax Act must pay the full amount of their advance tax on or by March 15th.Alternatively, they can pay the total sum by March 31.

Due dates for payment of advance tax

According to Section 211 of the Income Tax Act, The Taxpayer who has not chosen the presumptive taxation scheme for a business or profession that is covered by Sections 44AD or 44ADA, respectively, must pay the advance tax by the following deadlines:

If the Taxpayer has short or non-payment of advance tax will result in levy of interest under 234B and 234C of the Income tax Act, 1961. Now explain one by one as follows:-

Section 234B - Interest for non/short defaults in payment of advance tax

Under Section 234B, interest is levied in the following below mentioned circumstances:

1. In a case where the taxpayer has failed to pay the advance tax under Section 208 even though he is required to do so; or
2. In cases when the taxpayer's advance tax payment under Section 210 is less than 90% of the total tax due.

Interest under Section 234B shall be applicable on the assessed tax less the advance tax, interest is charged at 1% partial month is rounded up to a complete one month.

Interest will be= Point 1*2*3

Let's see Example 234B: Suppose the assessee has a business and his total tax payable liability is $60,000.00. He paid the below-mentioned advance tax.

1. 14,000/- up to June 15
2. 14,000/- up to September 15
3. 14,000/- up to December 15
4. 14,000/- up to March 15

Total Deposit: $56,000

Solutions:-Deposit. Now we need to check whether he paid at least 90% of the assessed tax as advance tax or not. Assessed tax is Rs 60, 000, and 90% of assessed tax is Rs 54,000.00; therefore, there is no need to pay 134B interest.

Let's see another example (234B): Suppose, as in the in the above example, the assessee has a business and his total tax payable liability is 60,000.00/-, and his total advance tax is 50,000.00. He has filed ITR on 15 July by paid all taxes.

Solution: Now we need to check whether he paid at least 90% of the assessed tax as advance tax or not. Assessed tax is Rs 60, 000, and 90% of assessed tax is Rs 54,000.00, and he deposits only 50,000/-, therefore needing to pay 134B interest.

234B Interest will be =60,000 (-). 50,000=10,000.00*1%*4 month

Interest =400/- only

Section 234C: Deferment of Advance Tax

Section 234C Interest is charged at 1% of the total outstanding due on the advance tax payable. It is calculated from the due dates until the date on which the due tax actually gets paid. It should be noted that interest will be charged only when the advance tax paid on or before June 15th and September 15th is less than 12% and 36% of the respective net tax dues.

Further, interest is levied on the taxpayer for any shortfall in payment of advance tax if it is on account of unexpected or underestimated income, and the remaining installment examples are as per below:-

1. In the case of earnings from lotteries, crosswords, and other games of chance.
2. In cases of capital gains.

The below-mentioned table clarifies and understates the interest rate applicable in different cases as per the due dates: -

Special Point Regarding 234C

1. If advance tax is paid up to 12% and 36% of the respective net tax dues, then deferment interest will not be charged.
2. Deferment Advance Tax Interest is always calculated at a minimum of 3 months, except for the for the last installment, which is calculated at only 1 month.
3. Interest on 234C is always calculated on tax as per ROI (return income), although interest on 234A and 234B will change if AO changes the income in the case of assessment or reassessment.
4. Accordingly, the 234C interest period will be 3 months for all installments, except for the last installment.

Let's see an example of 234C.

Suppose the assessee has a business and his total tax payable liability is $5,000.00. He paid the below-mentioned advance tax.

1. 75,000/- up to June 15
2. 1,20,000/- up to September 15
3. 1,40,000/- up to December 15
4. 1,00,000/- up to March 15

Solutions:-

How to pay advance tax

If the assessee wishes to pay the advance taxes physically or online, he should first go to the income tax site by logging in with his own ID or password. The following procedure needs to be followed by the assessee:

1. Login to the Income Tax E-filing website. https://www.incometax.gov.in
2. After that, one needs to click on the E-file option and choose E-Pay Tax.
3. Then it needs to click the (+new payment) option.
4. After that, we need to select the income tax box and click on proceed.
5. Then there is the option to choose the correct assessment year and select the type of payment under Advance Tax (100) after clicking the Continue option.
6. Now we see six types of payment amount options, and we will fill in the income tax amount we want to deposit, and then click the continue option.
7. The next step is to determine how to make the payment mode (Net Banking, RTGS/NEFT) and pay at the bank counter as per our needs. After selecting the proper bank name, which we will pay out, click continue.
8. Lastly, the payment mode and name of the of the assessment year are shown, and we check and confirm by clicking the continue button. After that, the assessee will pay the amount online if he wants to pay physically, or print a challan and pay through the bank.

Conclusion

Advance Tax "pay as you earn" not only ensures that income tax liability is spread over the year and reduces assessee burden but also helps in reducing defaults and enhancing the government's tax administration efficiency. For taxpayers, understanding 234B and 234C is to avoid interest, ensure compliance, and contribute positively to the nation's economic stability. This article is only for informational and educational purposes; however, it is advisable to consult with a tax professional for specific issues and challenges.