What to do if you have failed to pay advance tax?

The income tax return filing
season in on. The government believes in the philosophy of “Pay as your earn.”
This objective is achieved through two pronged strategy. The first strategy is
to ensure that the income is paid to the recipient after deduction of tax at
the time of payment of the income. Which is implemented through tax deduction
at source(TDS) or tax collected at source (TCS). For the remainders who are not
fully covered under the first strategy, the government uses the second strategy
of making them to discharge their tax liability by way of payment of advance
tax as and when they are earning.

What is advance tax and who has
to pay it?
Every person whose net tax
liability after adjustment of TDS is more than Rupees 10,000/- in a year has to
pay advance tax. An individual has to pay her advance tax in three installments
on 15th September, 15th December, and 15th March of the financial year in the
ratio of 30%, 30% and 40% respectively of their net tax liability for the year.
So in case your advance tax liability is RS. 1,00,000 you have to pay this by
way of installments of Rs. 30,000, 30,000 and Rs. 40,000 on 15th September,
15th December and 15th March respectively.
In case you fail to pay advance
tax or there is shortfall in advance tax paid by you, you can still pay the
advance tax latest by 31st March of the same financial year. In case there is
default or short fall in payment of the above installments of advance tax, the
short fall can be made good in subsequent installment. However for such short fall
or default you have to pay interest @ 1% per month for three months. So for
example in case you fail to pay the first installment due on 15th September,
you will have to pay an interest of Rs. 900/- in case you decide to pay the
first installment amount on anytime after 15th September but before 15th
December. Please note that the interest is payable even for a delay of one day.
So even if you pay the installment of advance tax on 16th September, you will
have to pay the interest of Rs. 900/-. So please pay your advance tax installment
well in time to avoid such exorbitant interest for small delay of a few days.
It may be noted that in case you
are a senior citizen and do not have any income taxable under the head “Profits
and gains of business or profession”, you have exemption from payment of
advance tax and the net tax payable on your income for the whole year can be
paid at the time of filing of income tax return by the due date of filing of
the income tax return.
What if you fail to pay advance
tax by 31st March of the financial year?
All is not lost in case you fail
to pay advance tax by end of the financial year, you can still discharge your
tax liability after end of the financial year but the tax so paid is treated
self assessment tax and not advance tax. For nonpayment of advance tax you will
also have to pay interest @ 1% for a month or part of the month from 1st April
of the following year till you actually discharge you liability of tax by way
of payment of self assessment tax. However in case the short fall in payment of
advance tax is not more than 10% of your tax liability, you do not have to pay
any interest.
In addition to the interest for nonpayment
of advance tax, you will also have to pay interest for default for nonpayment
of each installment as explained above.
It is important to bring to the
notice of the readers that in case you have defaulted on payment of advance tax
or there is shortfall in payment of advance tax, in addition to the above
interest @ 1% till you actually pay the self assessment tax, you will also have
to pay penal interest in case you fail to file your income tax return by the
due date which is generally 31st July but extended to 31st August this year.
The interest is chargeable from the due date of filing of your return till
actually date of filing of your return. This penal interest is payable in case
you file your income tax return beyond the due date even if you have already
made good the short fall in advance tax by way of payment of self assessment
tax even before due date of filing of the return.
So in case you have not fully
paid your advance tax you should pay the self assessment tax and file the
income tax return at the latest by the due date for this year i.e. 31st August
2015.
I am sure the above discussion will
help tax payers to understand the implications for defaulting in payment of
advance tax.

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