Forgot to pay your advance tax installment? What to do now?
Tue, 15 Dec 2015 09:00:46 -0700
Thankfully, the Income-tax Act 1961 provides a mechanism to pay advance tax even after the due date, and how!
In recent years, the income-tax department has advertised and informed taxpayers of various due dates for payment of taxes and filing of tax returns.

December 15 was the due date for payment of the second installment of advance tax for individuals. However, it is possible that some may have missed paying the advance tax because of one reason or the other.

Thankfully, the Income-tax Act 1961 (“the Act”) provides a mechanism to pay advance tax even after the due date. This article provides an overview of the various provisions under the Act related to advance tax.

What is advance tax?

Liability to pay advance tax arises if the estimated balance tax liability after giving credit of tax deducted at source (ie TDS) is Rs 10,000 or more during the relevant financial year. This obligation is applicable to individuals, professionals and companies who have earned income from interest, commission, rent, business, etc.

So the first step is to determine the various sources of your income during the financial year and estimating the balance tax due on the same taking into account the TDS on such incomes.

For example, Sonia has earned income from salary and rent from a house let out during the financial year. Sonia’s employer will deduct tax at source on her salary income.

Taking this into consideration, Sonia calculates that her estimated tax liability after credit of TDS on salary is Rs 30,000. This tax liability of Rs 30,000 will be required to be discharged by her during the year as advance tax.

Due dates for the payment of advance tax

An individual taxpayer is required to pay the advance tax during the financial year in three installments as under:

Financial Year 2015-2016 Installment amount
September 15, 2015 …………. 30% of advance tax due
December 15, 2015 …………. 60% of advance tax due
March 15, 2016 …………. 100 per cent of advance tax due

In view of the unprecedented rains in Tamil Nadu and Puducherry, the Central Board of Direct Taxes (CBDT) has extended the due date for depositing the advance tax from December 15 to December 31.

In case the individual fails to deposit the advance tax by 15th/31st December, then such individual can pay the entire tax liability along with the third installment by March 15, 2016.

Implications for delay in payment of advance tax

In case there is a delay in payment of an advance tax installment, the individual will be liable to pay interest at the rate of 1% per month on the amount due till the tax is deposited.

In the above example, suppose Sonia deposited Rs 9,000 (i.e. 30% of the advance tax liability of Rs 30,000) by September 15, but fails to deposit the second instalment of Rs 9,000 by December 15. In such a case, she can deposit this amount with the third instalment by March 15.

However, she will be liable to pay interest of 1 per cent per month on Rs 9,000 for three months.

The Act recognizes that it may be difficult for a taxpayer to estimate the income from capital gains or winning from lotteries, crossword puzzles, game shows, etc. Hence, no interest is levied for delay in payment of advance tax on such incomes provided the advance tax due is paid in the next installment(s).

Exceptions for applicability of advance tax

Taking cognizance of the increase in tax compliance arising out of advance tax payments, the Act exempts resident senior citizens (ie individuals of age 60 years or more) from payment of advance tax.

However, a senior citizen would be liable to advance tax if income is from business or profession.

Mechanism for payment of advance tax

Advance tax is required to be paid by submitting the duly filled tax payment Challan No. ITNS 280. A taxpayer can discharge the advance tax liability by cash, cheque or through online payment provided by authorized banks. The taxpayer should ensure that the challan is properly filled with accurate details such as PAN, Assessment Year to which the advance tax pertains, address, etc.

As they say, ‘better late than never’. Therefore, even if one has missed paying the first or even the second installment of advance tax, they should ensure that the tax is paid at the earliest, although with some interest.

This will safeguard the taxpayer from payment of any additional interest after all every penny saved is a penny earned.

(The author is Partner, KPMG in India. Darpan Gupta, Manager, also contributed to the article. The views expressed by them are personal)

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