Take stock of your income source and pay advance tax by Dec 15

Taxing Issues

Advance tax is required to be deposited by December 15. Individual taxpayers are required to pay the second instalment of advance tax and corporate taxpayers the third instalment by this date every year. For the government, taxes collected up to this date is significant for determining the direct tax collections for the year vis-à-vis the target.

What is advance tax? As the name suggests, advance tax is a prepayment tax liability during the course of the financial year (FY).

The provisions of the Income-tax Act, 1961 (IT Act) casts an obligation on a specified category of taxpayers to pay advance tax if they have income from interest, commission, rent and business, on which no tax has been deducted at source (or deducted at a lower rate) and where the balance tax liability on estimated income is Rs 10,000 or more. Advance tax provisions are applicable to individuals, professionals, companies and businessmen.

Due date for advance tax payment: Advance tax is required to be paid by an individual taxpayer in three instalments during the year. For the financial year 2012-13, first instalment, that is 30 per cent of total advance tax due, was to be paid by September 15. The second instalment, that is 60 per cent of total advance tax due, has to be paid by December 15 and the third instalment, that is, 100 per cent of total advance tax due, has to be paid by March 15, 2013.

In case, an individual has not paid the advance tax by September 15, the same can be paid along with the second instalment by December 15. However, there would be interest implications for delay.

Interest implication on delay in payment: Interest of 1 per cent per month is levied for delay in payment of advance tax. For example, if Ram had an advance tax liability for FY 2012-13 of Rs 30,000, then he was liable to pay Rs 9,000 (that is 30 per cent) by September 15. If this instalment was not paid, then a total of Rs 18,000 should be deposited by December 15 and interest will be levied on Rs 9,000 for three months.

Advance tax on income from capital gains: The tax laws recognise that it may be difficult for a taxpayer to anticipate the income from capital gains. Accordingly, in case a taxpayer has income from capital gains during the year, he is allowed to pay advance tax on such capital gains within the nearest due advance tax due date and there would not be any interest implications for missing the earlier due dates.

Failure to pay advance tax by December 15: If you are not able to pay the second instalment by December 15, then the third instalment is to be paid by March 15. There is an additional interest liability that needs to be discharged if taxes couldn’t be paid.

To sum up: It is time to take stock of your sources of income and tax liability for the current financial year and determine if you are liable to pay advance tax. It is surely better to discharge the advance taxes within the due date rather than pay interest later on.

(The author is a director at KPMG. The views expressed are personal)

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