Advance Tax – What it is, Who it applies to & When it is paid

Advance Tax means income tax which is to be paid in advance. The Scheme of Advance Tax is also known as Pay as you earn scheme. The advance tax is to be paid in various installments, which are spread over the financial year.
The income of the financial year is not earned in a single day but it is spread throughout the year and that is why such tax is collected by the government not on the day but throughout the year. This is the reason that scheme of advance tax is also known as PAY AS YOU EARN SCHEME.

Who should pay Advance Tax?

Salaried individuals and Businesses – An assessee is required to pay advance tax if his total tax liability is Rs.10,000 or more. You will have to pay advance tax as per various installments. Advance tax applies to all taxpayers such as salaried, freelancers, and businesses. Senior citizens, aged 60 years or older not running any business are exempted from paying advance tax.

For FY 2017-18 & FY 2016-17:

This is for both Individual and Companies

Due DateAdvance Tax Payable
On or before 15th June15% of advance tax
On or before 15th September45% of advance tax
On or before 15th December75% of advance tax
On or before 15th March100% of advance tax

For taxpayers who have opted for Presumptive Business Taxation Scheme

Due DateAdvance Tax Payable
By 31st March100% of advance tax

For taxpayers opting for presumptive taxation having business income from plying, hiring or leasing of goods – Section 44AE

Due DateAdvance Tax Payable
On or before 15th June15% of advance tax
On or before 15th September45% of advance tax
On or before 15th December75% of advance tax
On or before 15th March100% of advance tax

Penal Interest imposed by Income Tax Department under Sections 234A, 234B & 234C
You are required to pay Interest based on the Section 234 of the Income Tax Act.

  • Interest for default in furnishing of Return of income – Section 234A
  • Interest for default in Advance Tax Payment – Section 234B
  • Interest for deferment in installments of Advance Tax – Section 234C

Part I: Section 234 A – Interest for default in furnishing of Return of income
Income Tax Returns for a financial year are required to be filed within such time period as prescribed by Income Tax Department. If you don’t file such return within prescribed period, it will attract interest of Section 234A.
NOTE: Due Date for E-Filing Tax Returns:
Due date for filing Income tax returns (ITR) is 31st July of the Assessment year. For FY 2017-18, you can file your income tax returns at any time on or before 31st July, 2018

Use CAXpert to file your return if you haven’t filed it yet.
If you are liable to file Income tax return but does not file ITR till due date than, you will be liable to pay simple interest of 1% or part of month of outstanding tax. This interest will calculated from the due date applicable to you for return filing till the date you actually file your income tax return.

Part II: Section 234 B – Interest for default in payment of Advance Tax
There can be two scenarios where this interest is applicable –

Your tax liability for the financial year is Rs.10,000 or more and you did not pay any advance tax as per installments.
OR
You are required to pay advance tax but has not paid atleast 90% of such advance tax on or before 31st March of the financial year.
In any of above cases, interest of Section 234B will be levied.
You will have to pay interest of 1% p.m or part of the month till the tax is actually paid.

In simple words, Interest under Section 234B will be levied:

  • If Tax Paid < 90% of Advance Tax Liability.
  • Interest under Section 234B will start from 1st April of Assessment year & will continue till tax is actually paid

Part III: Section 234 C – Interest for deferment in installments of Advance Tax
Interest under Section 234C will be levied where you are liable to pay advance tax but has not paid advance tax as per installments, then you will be liable to pay a simple interest of 1% p.m. or part of the month for the period of delay.

Calculation of Interest under section 234C

ParticularsRate of InterestPeriod of InterestAmount on which Interest is calculated
Where, if Advance Tax paid on or before June 15 is less than 15% of the AmountSimple interest @1% per month or part of the month3 months15% of Amount less advance tax paid on or before June 15
Where, if Advance Tax paid on or before September 15 is less than 45% of the AmountSimple interest @1% per month or part of the month3 months45% of Amount less advance tax paid on or before September 15
Where, if Advance Tax paid on or before December 15 is less than 75% of the AmountSimple interest @1% per month or part of the month3 months75% of Amount less advance tax paid on or before December’ 15
Where, if Advance Tax paid on or before March 15 is less than 100% of the AmountSimple interest @1% per month or part of the month1 months100% of Amount less advance tax paid on or before March 15

* Amount on which interest is computed shall be = Tax on Total Income for the year less TDS less relief u/s 90 or 91 less tax credit u/s 115JD(if any).
* Such Interest will be calculated up to 31st March of the financial year (after 31st March of financial year the interest will be calculated under section 234B.

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