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Understanding Advance Tax Due Dates and Its Applicability

Advance tax, as the name suggests, is the tax that should be paid in advance rather than paying a lump sum amount at the end of the fiscal year. Taxpayers in India are obligated to pay their income taxes in installments, which is called advance tax, as their income is earned, not at the end of the financial year. Let's delve deeper into its intricacies, due dates, and applicability.

What is Advance Tax?

Under the Indian Income Tax Act of 1961, Section 208 defines advance tax as the income tax payable if your tax liability exceeds Rs 10,000 in a financial year. It is payable in the year in which income is received. Advance tax applies to all taxpayers, salaried, freelancers, and businesses. The exception is for taxpayers who have opted for the presumptive taxation scheme under section 44AD and 44ADA.

Who is Liable to Pay Advance Tax?

Advance Tax is applicable to:

  1. Salaried, self-employed individuals, and freelancers: If your tax liability post deductions (such as TDS and others) exceeds Rs 10,000 in a fiscal year, you are liable to pay advance tax.

  2. Senior citizens: Senior citizens who are 60 years or older and do not run a business are exempt from paying advance tax.

  3. Businesses: If a business's estimated tax liability for the year exceeds Rs 10,000, they are obligated to pay advance tax.

Advance Tax Due Dates and Liability

Under section 211 of the Income Tax Act, the advance tax is paid in four installments:

  1. On or before 15th June: The taxpayer is liable to pay 15% of the advance tax liability.

  2. On or before 15th September: The taxpayer is liable to pay 45% of the advance tax liability, minus the amount already paid in the first installment.

  3. On or before 15th December: The taxpayer is liable to pay 75% of the advance tax liability, minus the amount already paid in the previous two installments.

  4. On or before 15th March: The taxpayer is liable to pay the full amount of advance tax liability, minus the amount already paid in the previous three installments.

Case Laws Illustrating Applicability of Advance Tax

  1. CIT vs Birla Gwalior Pvt Ltd (1973): The Supreme Court ruled that advance tax paid by the assessee under section 210 on self-assessment is a payment of tax.

  2. Hindustan Commercial Bank Ltd. vs CIT (1972): The Supreme Court ruled that the advance tax was a method of collecting tax, and any interest payable for delayed or deficient payment was compensatory and not penal.

Interest on Non-Payment or Deficient Payment of Advance Tax

As per Section 234B and 234C, if the advance tax is not paid according to the schedule or if the tax paid is less than 90% of the assessed tax, the taxpayer will be liable to pay interest. The interest under Section 234B is levied at 1% per month on the unpaid amount from the due date of the advance tax to the actual date of payment. Interest under Section 234C is levied on the amount of underpaid advance tax.

Key Takeaways

In conclusion, understanding advance tax due dates and applicability is critical for tax planning. By effectively calculating and timely paying the advance tax, taxpayers can avoid the additional burden of interest on late payment. The due dates for advance tax installments are 15th June, 15th September, 15th December, and 15th March. Everyone whose tax liability exceeds Rs. 10,000 in a financial year is liable to pay advance tax, with exceptions being applicable.

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