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Provisions Related to Advance Tax under Income Tax Act, 1961

Provisions Related to Advance Tax under Income Tax Act 1961

Liability for Payment of Advance Tax (Section 208):

  • As per section 208 of Income Tax Act, 1961, every person whose estimated tax liability for the year is Rs. 10,000 or more, shall pay his tax in advance, in the form of “advance tax”. Such advance tax must be paid in four instalments on or before due dates of advance tax payment. In this article we shall discuss about various provisions related to Advance Tax and applicable interest in case of non-conformance to such provisions.
  • We know that income earned during the financial year 2018-19 shall be charged to tax in the assessment year 2019-20. But the assessee is required to pay tax, in advance, on the taxable income of financial year 2018-19 during the financial year 2018-19 itself.
  • Advance Tax, as computed in accordance with the provisions of this chapter, shall be payable during a financial year, only when the amount of such advance tax payable by the assessee during that year is Rs. 10000 or more.

 

Instalments of advance tax and due dates (section 211):

  • Advance Tax must be paid on or before due dates as specified in Income Tax Act. Similarly, it is also clarified how much advance tax must be paid in each installment. Refer to below table for further details:

Due Date of Instalment (On or before)

All assessees (other than the Eligible assessee as referred to in Section 44AD or section 44ADA) Taxpayers who opted for presumptive taxation scheme of section 44AD or section 44ADA
15th June Not less than 15% of advance tax liability Nil
15th September Not less than 45% of advance tax liability as reduced by the amount, if any, paid in the earlier instalment. Nil
15th December Not less than 75% of advance tax liability, as reduced by the amount(s) if any, paid in the earlier instalment(s) Nil
15th March The whole amount of advance tax liability as reduced by the amount(s) if any, paid in the earlier instalment(s). Up to 100% of Advance tax

 

Note:- Assessees covered u/s 44AD & u/s 44ADA are to pay advance tax of the whole amount in one instalment on or before the 15th March of the financial year.

Interest payable to assessee u/s 244A:

  • When refund is due to assessee, he is entitled to receive refund as well as simple interest on it. Interest will be calculated as follows.

 

Refund Type Rate of Interest Period
Where refund is out of TDS/TCS or advance tax paid during F.Y. ½ % per month or part of a month 1st day of April of the assessment year to the date on which refund is granted.
In any other case ½ % per month or part of month Date of payment of tax or penalty to the date on which refund is granted.

Interest Payable by Assessee :

  • The income tax Act, 1961 provides for the imposition of interest on assessee who doesn’t pay various taxes timely. In the same way, government has to pay interest on excess payment of tax to assessee.
  • Cases Where Interest Payable by Assessee :
  • Interest for not filing or late filing of return before due dates u/s 234A.
  • Interest for non-payment or short payment of advance tax u/s 234B.
  • Interest for deferment of advance tax u/s 234C.
  • Interest for failure to deduct & pay the TDS u/s 201(1A).
  • Interest for not Filing or Late Filing of Return before Due Dates [section – 234A]: Interest u/s 234A is attracted in following cases:
  • Where return is filled after due date.
  • Where return is not furnished by the assessee.
  • Due date: Date specified in section 139(1)
  • Rate of interest: simple interest @ 1% per month or part of the month
  • Period: Interest will be payable from the due date of submission of return to the date of actual furnishing the return.
  • Amount: Interest is payable on tax determined minus TDS/TCS & advance tax paid by assessee.

 

Note: Where the assessee had paid the taxes before the due date of filing the return but could not file the return for reasons beyond his control but filed belated, interest u/s 234A will not applicable as there is no loss of revenue.

  • Interest for Non-payment or Short Payment of Advance Tax [section – 234B]: Interest u/s 234B is attracted in following cases:
  • Advance tax has not been paid by the assessee or
  • The advance tax paid by the assessee is less than 90% of the ‘assessed tax’.
  • Assessed tax: Tax determined on total income minus TDS/TCS & advance tax paid by assessee.
  • Rate of interest: simple interest @ 1% per month or part of the month
  • Period: Interest will be payable from 1st April of A.Y. to date of Actual payment or regular assessment.
  • Amount: Interest is payable on assessed tax minus advance tax (paid if any)
  • Interest for Deferment of Advance Tax [section-234C]: Interest u/s 234C is attracted in following cases:
  • Instalment is not paid by the assessee or
  • An instalment is paid by the assessee but amount paid is less than actual/required.
  • Interest for Failure to Deduct & Pay the TDS [u/s 201(1A)]: Interest u/s 201(1A) is attracted in following cases:
  • Assessee who is required to deduct doesn’t deduct the tax at source (TDS)
  • Assessee after deducting tax at source fails to deposit the same.
  • Rate of interest: simple interest @12% P.a.
  • Period: Interest will be payable from the date on which such tax was Deductible to the date on which such tax is actually paid.
  • Amount: interest is payable on amount of TDS.

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