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June 16, 2000

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Advance Tax: default and deferment

Ganesh Jagadeesh & Co

Also see: What is advance tax?

Assessed tax
Before we proceed, let's uderstand this term. Assessed tax is the tax on total income determined under summary assessment or on regular assessment as reduced by TDS or tax collected at source.
Default in payment of advance tax
A person failing to pay advance tax is liable to pay simple interest of 2 per cent (1.5% from June 1, 1999) of the assessed tax for every month or part of the month.
The period for which the interest is payable is from April 1 of the assessment year to the date of determination of income under summary assessment or regular assessment.

A person who has paid advance tax but the amount so paid is less than 90 per cent of the assessed tax, would be liable to pay simple interest as above on the difference between the assessed tax and the advance tax paid.

A person, who pays self-assessment tax after March 31 of the financial year but before the completion of assessment, shall be liable to pay the interest as mentioned above upto the date of such payment and for any shortfall between the assessed tax and the tax paid from that date to the date of completion of assessment.

Example: Jambhunath has not paid any advance tax as of March 31, 1999.
He decides to pay Rs 10,000 as self-assessment tax on May 15, 1999.
His assessment is completed on August 10, 1999 and the assessed tax works out to Rs 15,000.
He is liable to the penal interest as follows:
Interest @ 2% for April and May 1999 on Rs 15,000 = Rs 600
Interest @ 1.5% for June, July and August 1999 on Rs 5,000 = Rs 225
Total interest payment = Rs 825

In case as a result of reassessment or re-computation of your income, the amount on which interest was initially payable is increased, you would still be liable to pay interest @ 2 per cent (1.5 per cent from June 1, 1999) per month from the date of regular assessment to the date of reassessment or re-computation of income.

Deferment of advance tax
In case a person does not pay or underestimates the instalment of advance tax to be paid, simple interest @ 1.5 per cent per month is to be paid.

Yes, there are some concessions given to a person sparing him of the interest if there is shortfall in payment of advance tax on capital gains or windfall gains such as lottery and horse racing. However, the tax on such income should be paid in the subsequent instalment or where there is no instalment due then before the end of the financial year.

Repayment tenure (years)

Circumstance

Rate of simple interest

Applicable period

Amount on which interest is payable

Advance tax paid on or before September 15 is less than 30 per cent of (i ii)

1.5% per month

3 months

30% of (i ii) - iii

Applicable tax paid on or before December 15 is less than 60% of (i ii)

1.5% per month

3months

60% of (i ii) - iv

Advance tax paid on or before March 15 is less than 100% of (i ii)

1.5% per month

-

100% of (i ii) - v

 

In the above table, i, ii, iii, iv, v, denote the following:
i) Tax on the total income as declared by the person in the income tax return
ii) Tax deducted at source or collected at source
iii) Advance tax paid by the person on or before September 15 of the relevant financial year
iv) Advance tax paid by the person on or before December 15 of the relevant financial year
v) Advance tax paid by the person on or before March 15 of the relevant financial year.

Example: Assume that these are the financial details of Mungerilal for the FY 1999-2000 and the assessment was completed on July 31, 2000.

  • Advance tax paid on September 7, 1999: Rs 5,000
  • Advance tax paid on December 14, 1999: Rs 2,000
  • Advance tax paid on March 15, 2000: Rs 8,000
  • Income declared in the IT return: Rs 150,000
  • TDS: Rs 1,000
His tax liability will be as follows:
  • Total income: Rs 150,000
  • Tax: Rs 19,000
  • Surcharge: Rs 1,900
  • Total tax: Rs 20,900
  • TDS: Rs 1,000
  • Assessed tax: Rs 19,900
Interest for default in payment of advance tax u/s 234B
  • Assessed tax: Rs 19,900
  • Advance tax paid during the year: Rs 15,000
  • Shortfall in payment of advance tax: Rs 4,900
  • Interest: Rs 294 (Rs 4,900 x 1.5% x 4 months (April - July 2000)
Cumulative advance tax paid

 

Cumulative advance tax paid

Should have paid

Shortfall

Interest

On or before September 15, 1999

Rs 5,000

Rs 5,970

Rs 970

1.5% x 3 x 970 =

Rs 44

On or before December 15, 1999

Rs 7,000

Rs 11,940

Rs 4,940

1.5% x 3 x 4,940 =

Rs 222

On or before March 15, 1999

Rs 15,000

Rs 19,900

Rs 4,900

1.5% x 4,900 =

Rs 74

 

The total interest payable under section 234C is Rs 340.

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