What if you miss the advance tax payment due date of March 15?

Preeti Khurana
Income tax rules make it mandatory to pay advance tax if the income tax liability is Rs 10,000 or more. Paying advance tax means you have to pay your annual income tax liability in regular instalments instead of lump sum at year end. For individuals, advance tax instalments (for financial year 2015-16) are due on 15th September, 15th December and 15th March. By 15th March 100% of your income tax dues must be paid.

Advance taxes for the salaried – TDS deduction by your employer takes care of a large part of your taxes and usually you don’t have to pay advance tax separately. But if you have significant rental income or capital gains from shares or selling assets, or large interest income which can raise your total tax outgo; you must pay advance tax.

Advance taxes for freelancers – If you are a freelancer, in all likelihood advance tax rules apply to you. Even if your client has deducted TDS, you must make it a point to estimate your annual income and calculate and pay taxes on it as per advance tax instalments. Clients do not know your tax slab and deduct TDS at rates different from income tax slabs. Tax deducted, if at all, is usually not sufficient. Also, as advance tax rules you have to pay tax on your annual estimated income, relying on TDS deductions may not be enough to meet 30% tax dues on 15th September and 60% tax dues on 15th December. You may fall short in some of them if a large part of your income is earned in later months.

Advance tax exemptions - Senior citizens, those who are 60 years or older and do not run a business, are exempt from paying advance tax. Those who are covered under presumptive scheme of taxation are also exempt from paying advance tax.

Penal interest when advance taxes are not paid

If you do not pay advance tax or payments are not as per instalments, penal interest may apply.

Interest under section 234B – Penal interest as per rules of section 234B has to be paid along with tax dues when any one of these is true for you -

You tax liability for the financial year is more than Rs 10,000 and you did not pay any advance tax.

You paid advance tax but advance tax paid is less than 90% of 'assessed tax'

Interest is calculated @ 1% on assessed tax less advance tax. Assessed tax means total tax computed on your income (reduce TDS already deducted from assessed tax).

Interest under section 234C – Even though your advance tax may have been paid in full, interest under section 234C may still apply if these have not been paid as per percentage due on instalments i.e. 30% on 15th September, 60% on 15th December and 100% on 15th March. A shortfall in instalments results in penal interest under section 234C. Except where shortfall is due to underestimation or failure to estimate amount of capital gains AND the dues are paid in full in the next instalment or if no instalment is due, you pay them before the end of the financial year. Interest calculations are similar to above.

What to do if you have missed the deadline of 15th March

• Pay your tax dues as soon as possible to minimise penal interest, do not wait until it is time to file your tax returns.
• If your advance tax shortfall is due to capital gains on shares or ESOPs where gains were earned post 15th March, you can avoid penal interest under section 234C by paying all your taxes in full before 31st March.
• Starting financial year 2016-17, advance tax instalments have been made same for both individuals and corporates i.e. by 15th June pay 15%, by 15th September pay 45%, by 15th December pay 75% and by 15th March, 100% of taxes must be paid. So in the next financial year, plan in advance and remember to pay timely instalments.

Author is a chartered accountant and chief editor at ClearTax
Source : moneycontrol.com