advance tax

This query is : Resolved

Report Abuse Follow Query Ask a Query

P.K.DUBEY

P.K.DUBEY (Querist)
Follow

20 July 2010 What is advance tax? How much this is different from other tax like service tax, tds, etc…

CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)
Follow

20 July 2010 Article on Advance Tax.

All of you may have gone through the ads published in news paper and broadcasted on TV channels above the advance tax ,this post will through some light on whole of the advance tax issue
Cut off Amount
if the tax payable is Rs. 10,000 or more(after taking tds in consideration), then the tax is paid in the previous year itself. In other words, payment of tax is not allowed to be deferred to the assessment year. Perhaps the motive of government is to collect the big amount of tax at the earliest.So Advance Tax is payable only if net tax payable on the estimated Income of the full Financial year is Rs 10000 or more.if Tax payable is less than Rs 10000 then no Advance tax is payable.Surcharge, education and higher education cess should also be considered while calculating the advance tax liability

Who is responsible to pay Advance Tax
The provisions of advance tax are applicable on all types of persons irrespective of the residential status of the person. The advance tax is paid in the previous year itself. Thus, the tax is paid in the year of earning of income, in other words the earning of income and payment of tax goes simultaneously. Thus, the tax is paid as income is earned. This scheme of advance payment of tax is also called pay as you earn scheme, i.e., pay tax as you earn income.

Due date to Pay advance Tax
Advance tax is paid by the all persons, both corporate assessee (company assessee) and non-corporate assessee (other than non-corporate assessee). The advance tax is to be paid in the following installments on the following dates:
• For Non-Corporate Assessee
o On or before 15 September - not less than 30% of tax payable
o On or before 15 December - not less than 60% of tax payable
o On or before 15 March - not less than 100% of tax payable
• For Corporate Assessee
o On or before 15 June - not less than15% of tax payable
o On or before 15 September - not less than 45% of tax payable
o On or before 15 December - not less than 75% of tax payable
o On or before 15 March - not less than 100% of tax payable
Since, the actual tax and actual income can be computed only after completion of the year therefore, the income is estimated at different due dates mentioned above.The tax on such estimated income is computed and percentage of the tax as mentioned above is payable by the assessee at different due dates.

Example
Qus.State whether Mr. X is liable to pay advance tax and if yes then what amount should be paid by what date. The income of Mr. X is Rs. 2, 60,000.(fy 2009-10)

Solution: The tax is Rs.10300 on income of Rs. 2, 60,000. Since, tax is more than Rs. 10,000, therefore, advance tax is payable. The advance tax is payable asunder:

Since Mr. X is a non-corporate assessee therefore, the first installment will be due
on 15th September.

On or before 15th September - first 30% of Rs. 10,300 = Rs. 3,090 Rs.(total=3,090)
On or before 15th December - next 30% of Rs. 10,300 = Rs. 3,090 Rs.(total=6,180)
On or before 15th September - balance 40% of Rs. 10,300 = Rs. 4,120 Rs.(total=10,300)

Challan to Pay Advance Tax
Challan To pay Advance tax is ITNS 280.For corporate assessee and assessee covered under section 44AB (audit case) it is mandatory to deposit tax online.

Penalty for Non Payment Of advance Tax .(section 234B)
Well, there are penalties in the form of interest payments to the taxman. But before worrying about penalties, find out if you are liable to pay advance tax. You don’t have to pay tax in advance if your tax liability is less than Rs 10,000 after reducing the tax deducted at source (TDS) from the total tax payable.

If you don’t pay advance tax at all or if the aggregate paid by March 31 is less than 90 per cent of the total tax payable, you will have to pay an interest of 1per cent per month on the deficit amount from April 1 of the following year till the date you file your return

• Where tax is paid by the assessee under section 140A or otherwise,-up to the date on which the tax is so paid, and reduced by the interest, if any, paid under section 140A towards the interest chargeable under this section; thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax.

Interest for deferment of advance tax (Section 234C)

If you don’t pay an advance tax instalment in full, you have to pay interest at 1 per cent a month for three months on the amount that falls short of the required payment. However, in the case of default on the last instalment (March 15), the penal interest of 1 per cent is chargeable for only a month.
Let’s illustrate this with an example. Let’s say you are an individual taxpayer and are liable to pay Rs 10,000 by way of advance tax. Suppose you pay Rs 9,500 in three instalments (Rs 3,000 on September 14, Rs 2,000 on December 15, and Rs 4,500 on March 15), would you have kept to your payment schedule?
i. There will have been be no default in respect of the first instalment (Rs 3,000, which is 30 per cent of Rs 10,000).
ii. The second instalment amount should, however, have been Rs 3,000 (60 per cent of Rs 10,000, less Rs 3,000 paid in the first instalment). Hence, the shortfall is Rs 1,000, on which the interest payable is Rs 30 (1 per cent of Rs 1,000 for three months).
iii. Since the third instalment is Rs 4,500, there will have been a shortfall of Rs 500, on which the interest charged would be Rs 5 (1 per cent of Rs 500 for a month).
Thus, you end up with a penal interest of Rs 35 for the year. If in the last month, that is March, you delay payment of the last instalment by even a day, you will have to pay interest on the entire balance of Rs 5,000.

The best strategy for paying advance tax should be to pay a little extra for first 2 installments and then paying amount close to the total tax liability during the third installment. One should also try not to pay extra amount so as to avoid any hassles of refund as is it best to pay nominal interest amount later on.

Message likes : 1 times