ADVANCE TAX

Its March, and when march is approaching towards end and also the end of financial year 2012-13 our daily newspapers are filled of advertisements saying that "PAY ADVANCE TAX" on time. This is the scene of every year when march month is going towards its close then " TAX AUTHORITIES " will asks to tax payers by throwing advertisement in print media, digital media and now a days on social media as well. All the tax professionals as well starts calling their clients to get the things done in right manner within the right time.
So those who are aware of all this exercise every year and those who are naive on this topic both can have multiple questions on this topic in-spite of the fact that they may have available the assistance of financial professionals within their reach. I would like to write on this topic.

There can be few questions which always comes in to the people's mind while reading,viewing or listing those advertisements.

Q.1 What is Advance Tax.

Q.2 Who needs to pay Advance tax.

Q.3 What are/can be the consequences if I/We don't pay Advance Tax.

Q.4 How the Tax Authorities identifies the potential assessee.

I would like to discuss all the questions mentioned above one by one in chronological order

Advance Tax or Pay as you Earn

Tax paid in advance when the tax liability in a year exceeds from Rs. 10,000/- limit laid down by Income Tax Act.The advance tax is paid in the previous year itself.Thus, the tax is paid in the year of earning of income, in other words the earning of income and payment of tax goes simultaneously. Thus, the tax is paid as income is earned. This scheme of advance payment of tax is also called pay as you earn scheme, i.e., pay tax as you earn income.

 

 Assessee for Advance Tax

The provisions of advance tax are applicable on all types of persons irrespective of the

residential status of the person. Advance tax is paid by the all persons, both corporate assessee (company
assessee) and non-corporate assessee (other than non-corporate assessee).
But now the relaxation limit of advance tax is Rs. 10,000/ so for those one's who have thier taxability after giving all deductions are less then 10,0000/- can not liable to pay advance tax but if they want they can pay it, their are no bar on doing so.

Due dates

The advance tax is to be paid in the following installments on the following dates:

For Non-Corporate Assessee

Due Dates                                                    Amount of Tax payable
On or before 15 September -                        not less than 30% of tax payable
On or before 15 December -                         not less than 60% of tax payable
On or before 15 March -                               not less than 100% of tax payable

For Corporate Assessee

Due Dates                                                         Amount of Tax payable
On or before 15 June -                                      not less than15% of tax payable
On or before 15 September -                            not less than 30% of tax payable
On or before 15 December -                             not less than 60% of tax payable
On or before 15 March -                                   not less than 100% of tax payable
Since, the actual tax and actual income can be computed only after completion of the year therefore, the income is estimated at different due dates mentioned above. The tax on such estimated income is computed and percentage of the tax as mentioned above is payable by the assessee at different due dates.

Consequences

If Advance Tax is not paid in full for installments falling due interest at the rate of 1% on the short amount is to be paid. If you delay payment of the installment by even a day, you will have to pay interest on the entire installment amount. If you do not pay advance tax at all or if the aggregate paid by March 31 is less than 90 per cent of the total tax payable, you will have to pay an interest of 1 per cent per month on the deficit amount from April 1 of the following year till the date you file your return under section 234 B/C of Income Tax Act.

Sec.234B says that"Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax  has failed to pay such tax or, where the advance tax paid by such assessee  is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of [one] per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year  [to the date of determination of total income under sub-section (1) of section 143(Self Assessement)  [and where a regular assessment is made, to the date of such regular assessment, on an amount]] equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax

And

Sec. 234C says that"[Where in any financial year,—

 (a) the company which is liable to pay advance tax  has failed to pay such tax or—

 (i)  the advance tax paid by the company on its current income on or before the 15th day of June is less than fifteen per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of September is less than forty-five per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of December is less than seventy-five per cent of the tax due on the returned income, then, the company shall  be liable to pay simple interest at the rate of [one] per cent per month for a period of three months on the amount of the shortfall from fifteen per cent or forty-five per cent or seventy-five per cent, as the case may be, of the tax due on the returned income;

 (ii)  the advance tax paid by the company on its current income on or before the 15th day of March is less than the tax due on the returned income, then, the company shall be liable to pay simple interest at the rate of [one] per cent on the amount of the shortfall from the tax due on the returned income:

Provided that if the advance tax paid by the company on its current income on or before the 15th day of June or the 15th day of September, is not less than twelve per cent or, as the case may be, thirty-six per cent of the tax due on the returned income, then, it shall not be liable to pay any interest on the amount of the shortfall on those dates;

 (b) the assessee, other than a company, who is liable to pay advance tax has failed to pay such tax or,—

 

(i)  the advance tax paid by the assessee on his current income on or before the 15th day of September is less than thirty per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of December is less than sixty per cent of the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of  [one] per cent per month for a period of three months on the amount of the shortfall from thirty per cent or, as the case may be, sixty per cent of the tax due on the returned income;

(ii)  the advance tax paid by the assessee on his current income on or before the 15th day of March is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of [one] per cent on the amount of the shortfall from the tax due on the returned income :] 

Identification By Tax Authorities 

There are certain measure through which tax authorities identify the potential tax payers who are liable to pay the tax but not filing or less filing which are listed as under.

1. Through bank annual returns as banks are directed by RBI that they have to file their annual information return which conatins the information of the all the account holder. like wise if a person deposited cash Rs. 10,lakh or more in his Bank account bank will notify tax authiorities about these kind of account holders

2. Buy or sell of property costs more than Rs. 30 lakh

3. Credit card expenses of Rs. 2 lakh p.a.or more or payment

4. Bonds or debenture of any institution or company of Rs. 5 lakh or more

5. purchese or investment in shares of any company of amount of Rs. 1 lakh or more

6. Purchese or investment of RBI bonds of Rs. 5 lakh or more

Tax authorities just traces these kind of transactions and issues notices to the person in default.

Lest sum up

All persons whose tax liability is Rs. 10,000 or more pay advance tax. Advance payment of tax is made in installments. The first installment is paid on 15th June by corporate assessee while non-corporate assessee pays the first installment on 15th September. The whole of advance tax is paid by 15th March by both corporate and non-corporate assessee. The payment of advance tax is thus made in the previous year itself and therefore, it helps government to speed up payment of tax and earn interest on it. Since advance tax is paid simultaneous to earning of income therefore the scheme of advance payment of tax is also known as pay as you earn scheme.

and if advance tax not paid on time assessee needs to pay interest @ 1% p.m under section 234B/C

There is a saying "It’s best to stick to deadlines when it’s about taxing taxes" We should follow that.