What is Advance tax? With Threshold limit, Due Dates & Consequences

Topic Covers:

1. Introduction
2. What is advance tax?
3. Threshold limit to pay advance tax
4. Due dates to pay Advance Tax
5. Consequence of Nonpayment or Short Payment of Advance tax
6. Difference between Section 234B and Section 234C

1. Introduction

In the Income Tax Act, assessee have to pay advance tax, if the net tax liability exceeds ₹ 10,000 /- after tax deduction or collection (TDS/TCS). Advance tax has to be paid as income is earned. In this article, we will understand all the provisions related to advance tax.

2. What is advance tax?

Advance tax is a system in which the taxpayer pays tax, in the financial year in which income is earned, rather than making lump sum payments after the end of the financial year. It is applicable to all individuals, self-employed professionals, business entities and corporations who cross the threshold limit.

3. Threshold limit to pay advance tax

Any Assessees whose tax liability is more than ₹ 10,000 after TDS/TCS deduction have to pay advance tax. Assessee means self-employed individuals, salaried employees, partnership firms, companies and taxpayers who have opted for the presumptive tax regime.

4. Due dates to pay Advance Tax

Note:

• • If the bank is closed on the last date of payment of advance tax, then the taxpayer will have to pay advance tax immediately on the next working day.
  • There will be interest charge on non-payment or short payment of advance tax.
  • NRI whose tax liability is more than ₹ 10,000/- will also have to pay advance tax.
  • You can consider TDS and TCS to calculate net advance tax.
  • In the case of capital gain, it is not possible to predict the amount of capital gain in advance, in this case if the capital gain is arises after the due date of advance tax, then it will have to be adjusted in the installment of the remaining advance tax.
  • Challan no. ITNS 280 is needs to be used for advance tax pay.

5. Consequence of Non payment or Short Payment of Advance tax

If the assessee does not pay advance tax with in the due date or paid less, then he will have to pay interest. The payment of interest will be charged according to section 234B and 234C. Let us now understand these sections in detail.

Section 234B – Non payment of Advance Tax

As per Section 234B, interest is charged in 2 circumstances –
 where the taxpayer has not paid advance tax or
 advance tax is paid but it is less than 90% of the total due.
So interest is required to be paid at the rate 1% per month or part of month on the nonpayment or short payment.
The interest of section 234B of the financial year for which advance tax is to be paid will have to be paid from the 1st April to the date of determination of income under 143(1) or the date of regular assessment.
Note- Calculation of advance tax is calculated by deducting the amount of TDS from the assessed tax liability.

Section 234C – Delay in payment of Advance Tax

In case of default in payment of installment(s) of advance tax i.e. In case of taxpayers (other than those who opted for presumptive taxation scheme under section 44AD or section 44ADA), interest shall be levied as per the provisions of section 234C
• If advance tax paid on or before 15th June is less than 12% of advance tax payable
• If advance tax paid on or before 15th September is less than 36% of advance tax payable
• If advance tax paid on or before 15th December is less than 75% of advance tax payable
• If advance tax paid on or before 15th March is less than 100% of advance tax payable.
In case of short fall in payment of 1st, 2nd and 3rd installment Interest under section 234C is levied for a period of 3 months, and in case of short fall in payment of last installment interest shall be levied for 1 month. This interest shall be levied at the rate of 1% per month.
In case of assesse, who have income under section 44AD and 44ADA do not pay advance tax or till March 15, pay advance tax less than the prescribed tax in returned income, then the assessee is liable to pay simple interest of 1% per month or part of month.

6. Difference between Section 234B and Section 234C

Section 234B of interest is imposed on taxpayers who fail to pay advance tax or pay less than 90% of the total assessed tax in advance tax. This interest will be charged at 1% per month or part of month from the end of the financial year till the date of payment of tax. Interest under section 234C will be charged on taxpayers who have not paid tax on time during the financial year.

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