Advance tax, Self-Assessment Tax & Interest U/S 234A 234B 234C

What is Advance Tax?

Keeping simple and short, we can say advance tax = pay taxes as you earn.

As per income tax laws, returns are filed in the subsequent F/Y year and the self-assessment tax is paid prior to submitting income tax return, but income was earned very earlier of filing of return. This was the main reason why advance tax was brought into concept. These payments should be made in instalments as per due dates provided by the income tax department.

Who should pay Advance Tax?

If an individual’s total tax liability is Rs 10,000 or more in a financial Year, then he/she should pay advance tax. Advance tax applies to all tax payers, salaried, freelancers, and businessmen.

Are there any exceptions?

  • Senior citizens, who are 60 years or older, and do not run a business, are exempt from paying advance tax.
  • Taxpayers who opt for presumptive scheme where business income is assumed at 8% of turnover are exempt from advance tax for AY 2015-16 and AY 2016-17.

 (However, starting AY 2017-18, such taxpayers have to pay whole amount of their advance tax in one instalment on or before 15th March. Presumptive scheme is covered under section 44AD and 44AE.  Starting AY 2017-18 businesses with turnover of Rs 2crores or less can opt for this scheme. This scheme has been extended to professionals such as doctors, lawyers, architects etc. Starting FY 2016-17, if their receipts are 50lakhs or less.)

 

What is the due date & schedule for payment of advance Tax?

For Individuals Only (FY 2016-17)

Due Date of Installment Amount Payable
   
On or before 15th September 30% of advance tax

 

On or before 15th December          60% of advance tax

 

On or before 15th March 100% of advance tax

 

                       

Points to note

1.Any amount of tax paid by way of advance tax on or before 31st march shall also be treated as advance tax paid during the financial year

2.The advance tax shall be computed by the assesse on the estimated total income for the entire income including winning from lotteries, crossword puzzles, capital gains etc.

3.The amount of estimated total tax liability shall be computed after reducing any TDS/TCS if any has been deducted. Accordingly, advance tax shall be paid after reducing the amount of TDS/TCS if any.

 4.If the notified banks are closed on the last day of payment of advance tax, then such instalment can be paid on the following working day without levy of interest under section 234B & 234C.

What is Self-assessment tax?

Your income tax return cannot be submitted to the tax department, unless you have paid tax dues in full. Sometimes, you may see tax payable at the time of filing your return, this payment of tax is known as self-assessment tax.

Usually, interest under section 234B and 234C will also have to be paid along with your tax due, if you are paying any tax after 31st March, i.e. if any amount of advance tax is not paid on or before 31st march and is declaring such tax with the filing of return then this tax becomes self-assessment tax.

Interest payable by the taxpayer under section 234A, 234B & 234C

The provisions of various interests are made for the purpose to make assesse to file return and payment of advance tax paid correctly within the time prescribed under the Act.

And hence on noncompliance with the provisions of the Act, interest shall be chargeable U/S 234A, B, and C

To understand different interest types of interest, we should gain knowledge about the provisions of section 234A, 234B and 234C dealing with interest for;

234A – For delay in filing the return of income: This panel interest is to be paid for the period commencing from the due date of filing the return to actual submission of return.

234B – For non-payment or short payment of advance tax: this interest should be calculated and paid for a period commencing on 1st day of April of the AY to the date of determined of income tax. This would be calculated on the amount of tax determined less advance tax & TDS paid on thereof

234C-  For non-payment or short payment of individual instalment or instalments of advance tax (i.e., deferment of advance tax): In this sec, if the assesse fails to pay the advance tax as per applicable tax slabs he is liable to pay 1% per month for a period of 3 months for every deferment. But, for last instalment i.e. on 15th march, interest would be 1% for 1 month only. Interest is calculated on the difference between the amount paid and amount of payable

First thing to be kept in mind while determining the interest payable under all these sections is that interest is to be calculated @ 1% per month or part thereof. So even if you are late in filing the return by 15 days, you’ll have to pay the interest for a whole month.

 

Illustrations to understand the calculation of interest under each section

Illustration1 on 234A

Mr. X is a doctor. The due date of filing the return of income in his case is 31st July, 2016. He filed his return of income on 11th November, 2015. His tax liability for the financial year 2015-16 is Rs. 9500 (which is paid on 11th November, 2016).

In this case, Mr. X has filed his return after the due date and hence he will be liable to pay interest under section 234A

So, interest under section 234A works out to be:

Interest amount: – Rs. 9500 x 4 months x 1% = Rs.380

Illustration on 234B

Mr. A is running a business. His tax liability for the year is Rs. 40000. He has not paid any advance tax till 31st March but he has a TDS credit of Rs 5000. Entire tax was paid by him at the time of filing the return of income on 31st July.

In this case, since he has not paid any advance tax, interest will be calculated from the 1st day of the assessment year till the day of paying the tax and filing the return.

So, interest under section 234B works out to be:

Rs.35000 i.e. (Rs 40000 – Rs 5000) x 4 months x 1% = Rs 1400

Illustration on 234C

Mr X is running a small shop. His tax liability is Rs. 41,500. He has paid advance tax as given below:

  • Rs. 15,000 on 15th September,
  • Rs. 5,000 on 15th December,
  • Rs. 18,400 on 15th March.

So, the interest liability will be calculated as follows:

For the First instalment of 15th September:

Advance tax to be paid = Rs. 41,500 x 30% = Rs. 12,450

Mr. Pratik has paid Rs. 15,000 so there is no shortfall and thus no interest is to be paid

For the Second instalment of 15th December:

Advance tax to be paid = Rs. 41,500 x 60% = Rs. 24,900

Total advance tax paid so far is Rs. 20,000 (Rs. 15,000 + Rs. 5000) so the interest on shortfall will be: (Rs. 24,900 – Rs. 20,000) x 3 months x 1% = Rs. 4900 x 3 months x 1% = Rs. 147

For the Third instalment of 15th March:

Advance tax to be paid = Rs. 41,500 x 100% = Rs. 41,500

Total advance tax paid so far is Rs. 3100 (Rs. 15,000 + Rs. 5000+ Rs 18,400) so the interest on shortfall will be: (Rs. 41,500 – Rs. 38,400) x 3 months x 1% = Rs. 3100 x 1 months x 1% = Rs. 31

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