Navigating Advance Tax Payment: A Comprehensive Guide for Taxpayers

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Navigating Advance Tax Payment: A Comprehensive Guide for Taxpayers

Key Takeaways:

1. Advance tax must be paid in four instalments for the financial year 2023-24, with the 3rd instalment due before 15th December 2023.
2. Taxpayers are required to calculate the advance tax payable after giving credit for Tax Deducted at Source (TDS).
3. Failure to comply with advance tax payment obligations may result in interest charges under section 234B (of Income Tax Act, 1961).

Synopsis:

The provisions outlined in sections 208 to 219 of the Income Tax Act, 1961, require taxpayers to pay advance tax for the financial year 2023-24 in four instalments. The third instalment, due before 15th December 2023, is a crucial deadline for individuals and businesses. Let’s delve into the intricacies of advance tax payment, its calculations, and the consequences of non-compliance.

Advance Tax Payment Schedule

Taxpayers are required to pay advance tax in four instalments for the financial year 2023-24, as follows:

Exemptions from Advance Tax Payment

The provision of payment of advance tax does not apply to an individual resident in India who: 1. Does not have any income chargeable under the head ‘Profits and gains of business or profession’.

2. Is of the age of sixty years or more at any time during the previous year.

Calculation of Advance Tax

The amount of instalment is to be calculated after giving credit of Tax deducted at source (TDS). Let’s consider an example to understand the calculation of advance tax payable in each instalment.

Example:

Mr. Shah estimates his income for the financial year 2023-24 from various sources as follows:

• Business Income: Rs. 5,95,000
• Income from house property: Rs. 23,000
• Interest on deposit (TDS Rs.1,200): Rs. 12,000
• Dividend income (TDS Rs. 4,000): Rs. 40,000
• Other income (TDS Rs. 3,000): Rs. 30,000

Using the above information, the taxable income is calculated as Rs. 6,50,000, and the tax payable on this income, including Income tax and additional Surcharge, is Rs. 44,200. After deducting the TDS of Rs. 8,200, the liability of advance tax is Rs. 36,000.

The calculation of advance tax payable in each installment for Mr. Shah is as follows:

• On or before 15.06.23: Rs. 5,400 (being 15% of Rs. 36,000)
• On or before 15.09.23: Rs. 10,800 (being 45% of Rs. 36,000 - Rs. 5,400)
• On or before 15.12.23: Rs. 10,800 (being 75% of Rs. 36,000 - Rs. 16,200)
• On or before 15.03.24: Rs. 9,000 (being Rs. 36,000 - Rs. 27,000)

Consequences of Non-Compliance

If under any instalment tax has been paid less, in the next instalment it is to be paid with interest at the rate of 12% on the remaining amount under section 234B (of Income Tax Act, 1961).

Section 234B (of Income Tax Act, 1961): Interest chargeable for defaults in payment of advance tax

Where the assessee fails to pay advance tax which he is liable to pay under section 208 (of Income Tax Act, 1961) or where the advance tax is less than 90% of the assessed tax, he shall be liable to pay simple interest at the rate of 1% for every month or part of a month comprised to the period from 1st April next following the financial year in which the advance tax was payable to the date of determination of total income under section 143(1) (of Income Tax Act, 1961) and where a regular assessment is made.

For the purpose of interest under section 234B (of Income Tax Act, 1961), “assessed tax” means the tax on the total income determined under section 143(1) (of Income Tax Act, 1961) or on regular assessment as reduced by the amount of:

1. Amount of TDS
2. Any relief of tax allowed under section 89 (of Income Tax Act, 1961)
3. Any relief of tax allowed under section 90 (of Income Tax Act, 1961) on account of tax paid in a country outside India
4. Any relief of tax allowed under section 90A (of Income Tax Act, 1961) on account of tax paid outside India
5. Any deduction from Indian Income tax payable allowed under section 91 (of Income Tax Act, 1961) on account of tax paid in a country outside India
6. Any tax credit allowed to be set off

Conclusion

The upcoming deadline of 15th December 2023 for the 3rd instalment of advance tax is a critical milestone for taxpayers. Understanding the calculations and ensuring timely payments is not only a legal obligation but also essential for avoiding interest charges. Failure to comply with advance tax payment obligations may result in interest charges under section 234B (of Income Tax Act, 1961). It is imperative for taxpayers to carefully assess their income, follow the prescribed timelines, and meet their advance tax liabilities to maintain financial prudence and regulatory compliance.

FAQ

Q1: What are the due dates for advance tax payments for the financial year 2023-24?

A1: The due dates for advance tax payments are before 15th June, 15th September, 15th December, and 15th March.

Q2: Are there any exemptions from advance tax payment?

A2: Yes, individuals who do not have any income chargeable under the head ‘Profits and gains of business or profession’ and individuals aged sixty years or more at any time during the previous year are exempt from advance tax payment.

Q3: What are the consequences of non-compliance with advance tax payment obligations?

A3: Non-compliance may result in interest charges under section 234B (of Income Tax Act, 1961).