The economy is facing unprecedented disruption and uncertainty due to the Covid-19 pandemic. In response, the government has announced certain relief measures. One such measure is reducing the interest liability on tax payments falling due between March 20 and June 29, but paid by June 30, 2020. However, the government had not extended the due date for payment of the first instalment of advance tax.
To provide readers with some context, advance tax is a mechanism by which the government collects income tax in instalments, spread during the financial year in which the income is earned or received. Advance tax receipts help the government to get a constant flow of tax revenue on an ongoing basis in order to meet its obligations.
The first instalment of advance tax was due by June 15, 2020. According to the Covid-19 relief measures, if this first instalment of advance tax is paid by June 30, 2020, instead of June 15, 2020, then the interest on delayed payment will be levied at 0.75 per cent per month instead of 1 per cent per month. The reduced rate of 0.75 per cent is still higher than market interest rates, which are dipping. Therefore, individuals may consider depositing their estimated first instalment of advance tax by June 30, 2020 in case they have not deposited the advance tax by June 15, 2020. This shall enable the taxpayer to save some additional interest. This article discusses some important aspects in relation to advance tax provisions applicable to individuals.
Who pays advance tax?
The liability to pay advance tax arises on all taxpayers, whether salaried, freelancers, professionals or businesspersons. The advance tax liability arises if the total estimated tax liability after tax deduction or tax collection at source and foreign tax credit exceeds Rs 10,000. However, a resident senior citizen (i.e. an individual of the age of sixty years or above at any time during the financial year) not having income from business or profession is not liable to pay advance tax. The table given with this article provides a snapshot of the due dates for payment of advance tax by individuals for FY 2020-21.
The amount paid after March 15 but on or before March 31 is also treated as advance tax paid. Therefore, if due to any reason, 100 per cent tax for a financial year is not paid by March 15, additional advance tax can be paid by March 31 and penal interest can be minimised.
How to calculate tax liability
For calculation of advance tax, individuals are required to estimate their total taxable income and income tax (including applicable surcharge and cess) for the entire financial year. From this estimated tax liability for the year, taxes discharged by way of withholding tax, taxes collected at source, foreign tax credit and earlier advance tax instalments paid, if any, need to be deducted. Specified percentage of the remaining tax is payable on or before the specified due dates.
Modus operandi for payment
A number of bank branches have been authorised by the Income-Tax Department to receive advance tax payment on behalf of the government. Some of the authorised banks are HDFC Bank, Axis Bank, ICICI Bank, and a few nationalised banks. The taxpayer can visit one of these authorised bank branches and make the required payment. Alternatively, the taxpayer may pay advance tax online by visiting the official website of the income tax department. The steps for payment of advance tax online are as follows:
Visit the e-payment facility on the website of the Income-Tax Department: https://onlineservices.tin.egov-nsdl.com/etaxnew/ tdsnontds.jsp. Then choose the right form for the payment of advance tax. For individuals, it is ITNS 280. Select the correct code for advance tax, i.e. 100. Fill basic details like Permanent Account Number, year for which advance tax payment is being made, address, etc. Thereafter, upon clicking ‘Proceed’, the payer will be redirected to the net banking page (of the authorised bank), based on the option selected, i.e. payment via net banking or debit card. Input the details of the advance tax amount to be deposited. After making the payment, a receipt called as taxpayer’s counterfoil is generated.
In case, the taxpayer has paid advance tax higher than the total tax liability, the excess amount paid can be claimed as refund when filing the return of income.
Charges for delayed payment
Interest at 1 per cent per month is levied for three months in the case of deferral of tax payment, which is due on June 15, September 15, and December 15, and for one month in the case of deferral of payment of the last instalment, i.e. tax which is due on March 15. However, interest is not payable if: the advance tax paid on or before June 15 is 12 per cent or more of the advance tax payable for the year; and on or before September 15 is 36 per cent or more of the advance tax payable for the year.
Further, as income from capital gains cannot be anticipated, advance tax on capital gains becomes payable starting from the quarter in which the capital gain is earned. Therefore, no interest is charged in respect of advance tax on capital gains if the tax on such income is paid in subsequent instalments due when the gain arises before March 15. If such a gain arises after March 15, no interest will be charged if the tax is paid on or before March 31.
If the total amount of advance tax paid amounts to less than 90 per cent of the taxpayer’s advance tax liability, interest is payable at the rate of 1 per cent per month from April 1 following the year in which the tax is due, until payment of the balance tax amount.
The writer is a partner with Deloitte India. Inputs for this story were provided by Mousami Nagarsenkar, director, Reena Poddar, manager, and Charmi Shah, assistant manager, Deloitte Haskins & Sells LLP