Latest Advance Tax payment rules under Income Tax Act, 1961: All you need to know

Question: Can you provide an overview of the Advance tax provisions under the Income-tax Act 1961?

Answer by Dr Suresh Surana, Founder, RSM India: Advance tax, as the name suggests, is a tax paid by the taxpayers in the financial year in which the corresponding income is earned as opposed to the assessment year in which such income is assessed to tax. Such tax is computed on the consolidated income earned and expected to be earned from various sources (i.e., salary income, rent income, interest income etc.) during the financial year, after adjusting the applicable deductions, exemptions, TDS/TCS credit, etc.

In accordance with section 208 of the Income Tax Act, 1961 (hereinafter referred to as ‘the IT Act’), every person whose estimated tax liability for the year is Rs. 10,000 or more, shall be liable to pay advance tax. However, resident senior citizens aged 60 years or more during the relevant financial year and not having any income from business or profession would be exempt from payment of advance tax.

Generally, advance tax payments are required to be paid in specified instalments every quarter on or before the specified due dates, failing which the taxpayer would be subjected to certain interest consequences. However, specified professionals such as doctors, lawyers, architects etc. having opted for presumptive scheme u/s 44AD or 44ADA of the IT Act would be required to pay their entire advance tax liability in one instalment (vis-à-vis quarterly instalments applicable to other taxpayers) on or before the 15^th March of the relevant financial year.

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Taxpayers failing to pay their advance taxes in due time would be subject to the following interest consequences:-

Interest u/s 234B of the IT Act

A taxpayer who is liable to pay advance tax u/s 208 of the IT Act has either failed to pay the advance tax or advance tax paid by the taxpayer is less than 90% of the assessed tax liable to pay simple interest at 1% per month or part of a month for default in payment of advance tax. Such interest would be computed from the first day of the assessment year (i.e. after the end of the financial year), i.e., from 1st April till the date of determination of income under section 143(1) or when a regular assessment is made, then till the date of such a regular assessment. It is pertinent to note that any tax paid till 31st March will be treated as advance tax.

Interest u/s 234C of the IT Act

Section 234C provides for levy of interest for default in payment of instalment(s) of advance tax. Such interest would be levied @ 1% simple interest per month or part of a month for short payment/ non-payment of individual instalment(s) of advance tax. Interest u/s 234C in case of deferment of different instalments of advance tax would be levied as follows:

In case of taxpayers opting for presumptive taxation scheme u/s 44AD or 44ADA of the IT Act, interest shall be levied if advance tax paid on or before 15th March is less than 100% of advance tax payable.

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Interest shall not be levied on the shortfall if the taxpayers have paid the minimum amount payable on or before the specified due dates. Also, taxpayer shall not be liable to any interest liability u/s 234C of the IT Act if the shortfall in payment of tax is due to certain specified incomes such as capital gains, casual winnings such as winnings from lottery, crossword puzzles, etc. and the taxpayer pays the required advance tax on such income as a part of immediate following instalments or till 31st March, if no instalment is pending. 

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