This article is written by Kishita Gupta, a United World School of Law, Karnavati University, Gandhinagar, graduate. This article discusses about the advance tax mechanism under the Income Tax Act, 1961, along with a discussion on the penalties and how advance tax can be filed.
This article has been published by Sneha Mahawar.
Table of Contents
Introduction
We are all aware that taxes collected by the citizens amount to the most significant share of the revenue for the government. Also, it is not a hidden fact that tax collection is not a new practice but has been followed since ancient times when kings used to levy taxes on the citizens of their kingdoms. Therefore, for the Indian Government as well, the collection of taxes is very significant for the Indian economy. One such tax is the advance tax. In this article, the author has attempted to discuss various aspects of advance tax in India.
What is advance tax
Let us begin with a little introduction to advance tax. As the name implies, an advance tax is a tax that must be paid for the income earned in a specific financial year in advance. The Income Tax Act of 1961 governs the payment of advance tax. The Act’s Sections 207 to 219 deal with the obligation to pay advance tax by the deadline in order to prevent any repercussions, while Sections 234A, 234B, and 234C deal with the fines that may be incurred for failure to do so. As noted above, advance tax is paid in the year in which the individual earns that income. This is why it is also known as the “pay as you earn scheme.”
Each assessee shall estimate his income and tax liability for any prior year in line with the provisions of Section 207 of the Income Tax Act of 1961, and the income tax so estimated shall be paid in advance in the manner specified by Section 211 of the Income Tax Act of 1961.
The advance tax enables the government to receive a steady flow of income throughout the year, preventing it from having to postpone making any expenditures until the end of the financial year. This strategy helps the government function.
When is an individual liable to pay advance tax
The requirement to pay advance tax arises under Section 208 whenever any taxpayer’s income tax amount is Rs. 10,000 or higher. The assessees must calculate their current income and pay the corresponding advance tax. Except in cases where the Assessing Officer has given notice, there is no requirement to submit an estimate or statement of income to the Assessing Officer. Residents who do not have any income subject to taxation under the heading “profit and gains of business or profession” and those who are 60 years of age or older are the only ones exempted from paying advance tax. For the purpose of determining the tax liability, the secondary higher education cess and the education cess must also be taken into account.
Those who choose the presumptive scheme under the Income Tax Act must pay the full amount of their advance tax on or by March 15th, as started with the Financial Year 2016–17.
For business
The advance tax must be paid in full by one installment on or before March 15 for taxpayers who chose the presumptive taxation scheme under Section 44AD. They can also choose to pay all of their outstanding taxes by March 31. Small firms are eligible for the programme, which assumes that their annual revenues would be 8% of their turnover or gross revenues. The business revenue should be estimated at 6% of the turnover if the gross receipts/turnover were received via account payee bank draft, account payee check, or electronic clearing system. The amount determined thereafter becomes the business’s final taxable income, and the advance tax will have to be paid on this amount.
For professionals
The presumptive taxation scheme under Section 44ADA also applies to independent professions like doctors, lawyers, and architects, among others. They must pay their entire advance tax liability in one installment by the deadline of March 15th. Alternatively, they can pay the total sum by March 31.
What are the due dates for payment of advance tax
For individual or corporate taxpayers
According to Section 211 of the Income Tax Act, an individual or corporate taxpayer who has not chosen the presumptive taxation scheme for a business or profession that is covered by Sections 44AD or 44ADA, respectively, must pay the advance tax by the following deadlines:
| Due date of payment of installment | Amount payable as advance tax |
| Either on June 15th or before that | 15% of the advance tax. |
| Either on September 15th or before that | 45% of the advance tax, after subtracting the amount paid in the previous installment. |
| Either on December 15th or before that | 75% of the advance tax by subtracting the amount paid in the previous installment. |
| Either on March 15th or before that | 100% of the advance tax, after subtracting the amount paid in the previous installment. |
For small business taxpayers
Small business taxpayers are required to pay their whole advance tax on or before the 31st of March of each year. Depending on how they received their business revenue for the year, the taxes should be estimated at 6% or 8% of that revenue.
Note: There may be a situation where there has been the issuance of a notice of demand under Section 156 of the Income Tax Act in accordance with a decision made by the Assessing Officer pursuant to Section 210‘s subsections (3) or (4). In such a case, if the notice is served after any of the due dates specified above, on a case-to-case basis, the appropriate part or, if required, the whole of the amount of the advance tax which is specified in such a notice shall be payable on or before each of those dates which fall after the date of service of the notice of demand.
Interest paid for advance tax
Section 234A – delay in filing of advance tax
Income tax returns for a financial year must be submitted within the deadline set forth for citizens each year. An individual will be charged this interest if they file their return after the deadline or do not file it at all.
Now, if an individual fails to file their taxes or misses the deadline, they may find themselves in one of these three situations:
- First is where they owe the Income Tax Department money for unpaid taxes.
- Second is in situations where the IT department will reimburse the tax if the individual qualifies for it.
- Last situation is where the taxes were paid on time and there are no further taxes owing or refunds anticipated.
If any individual falls into category ‘2’ or ‘3,’ they probably don’t need to worry too much about paying their taxes late because, in these two cases, interest might not be charged. However, their assessing officer may still have to decide to add interest if he deems it necessary.
But please note that an individual will land in trouble if they have unpaid taxes that are still owed and they failed to file their returns by the deadline. On the unpaid tax balance, that individual will be charged simple interest at a rate of 1% every month or a portion of a month. This interest will be calculated from the applicable due date for the individual to file their return for the relevant financial year to the day that they actually file their return.
The period beginning on the day immediately following the deadline for filing the income tax return is when interest under Section 234A is assessed. Interest is charged up until the moment the income tax return is submitted. When the assessee has not provided a return, interest is charged up to the date the assessment is completed in accordance with Section 144 of the Income Tax Act.
Following the deduction of any advance tax, TDS/TCS, or self-assessment tax paid by the taxpayer, interest is applied to the amount of tax due by the taxpayer.
The following formula is used to calculate interest for late income tax return filings under Section 234A:
(Net tax due) x (number of months) x (1% monthly)
Note: The net tax liability at the closing of the financial year, after adjustments, is the net tax outstanding. The term “months” refers to the interval between the deadline and the actual date of filing returns.
Section 234B – defaults in payment of advance tax
Under Section 234B, interest is levied in the following two circumstances:
- In a case where the taxpayer has failed to pay the advance tax under Section 208 even though he is required to do so; or
- In cases when the taxpayer’s advance tax payment under Section 210 is less than 90% of the total tax due.
Interest under Section 234B shall be applicable in each of the aforementioned situations. On the assessed tax less the advance tax, interest is charged at 1%. A partial month is rounded up to a complete one. Additionally, the amount used to calculate interest is rounded down so that any fraction of a hundred is discarded.
Section 234C – deferment of advance tax
According to Section 234C of the Act, an assessee who fails to pay advance tax payments as required by Section 208 of the Act must pay interest. The assessee is obligated to pay simple interest at a rate of 1% per month for a period of three months on the amount of the shortfall established in connection to the due dates for advance tax payments.
Interest will be assessed against taxpayers (other than those who choose the presumptive taxation option under Section 44AD or Section 44ADA) in the following cases:
| If Interest to be paid is less than the percentage of advance tax payable | Due date |
| 12% | June 15 |
| 36% | September 15 |
| 75% | December 15 |
| 100% | March 15 |
Section 234C will not be applied if the underestimation or failure to estimate any of the following incomes led to the shortage of advance tax in any installment.
- In the case of earnings from lotteries, crosswords, and other games of chance.
- In cases of capital gains.
- In the case of income earned from a new business.
- In the case of a domestic company’s dividend income of more than Rs. 10,000.
Additionally, the assessee pays the tax due on the aforementioned income. Additionally, the assessee must pay the advance tax by March 31 or, if none is payable, by the succeeding installments’ due date.
Ways in which advance tax can be paid
Physical/offline mode
An individual can make their tax payment over the counter or through Real-Time Gross Settlement (RTGS) or National Electronic Funds Transfer (NEFT) at their bank branch. Using the Make Payment Offline service, one can download a Challan Form/Mandate Form in order to pay the challans that are already generated and saved under the Generated Challans tab. In the case of the payment of advance tax, an individual needs to move forward with the payment within 15 days of the CRN’s generation date or by March 31st of the current fiscal year, whichever comes first.
The individual will receive a confirmation message on both the mobile number and email address that they entered with the e-Filing portal after successful payment. The status of a successful payment will also be reflected in the payment history along with the CIN that the bank will supply after the payment is confirmed.
Correction of the error made during the payment
The bank branch taking tax payments is permitted to alter the challan data in the instances of the following errors and within the time frames specified below:
| Errors made | Period from the deposit of challan |
| Amount of tax | 7 days |
| Assessment year | 7 days |
| Major head code | 3 months |
| Minor head code | 3 months |
| PAN of the taxpayer | 7 days |
| Nature of payment | 3 months |
Note: The individual must get in touch with their jurisdictional assessing officer and request a correction if they have failed to submit a request for challan correction within the time frame specified above. Only under particular conditions are the banks permitted to make the changes. These conditions are discussed below:
- Banks are not supposed to make the corrections in the taxpayer’s name.
- Minor head corrections cannot be made at the same time as the assessment year.
- A correction in the Permanent Account Number (PAN) or Tax Deduction and Collection Account Number (TAN) is only permitted if the name in the old PAN or TAN matches the name mentioned in the updated PAN or TAN.
- Only if the updated amount matches the amount of tax received by the bank under the original challan.
- One can only make corrections once for a particular field. They will not get multiple chances to make corrections to the same field.
- There is either a complete correction of all the requested fields or there will be rejection, so remember that if even one of the fields fails the correction criteria, the entire request will be rejected.
Online mode
If you do not wish to pay the advance taxes by physically visiting the bank branch, the government of India also gives taxpayers an option to pay their advance taxes online. The following procedure needs to be followed by an individual:
- Check out the option of an e-payment facility on the Income Tax Department’s website.
- Then one needs to choose the correct ‘Form’ in order to make an advance tax payment. For individuals, it is ITNS 280.
- After that, one needs to click on the correct code option for advance tax. The code number applicable in this case would be 100.
- Then the option to fill out the personal details of an individual, which include PAN, name, address, email address, phone number, etc., will be required to be filled out.
- After completing the above procedure, click on the ‘Proceed’ tab. Then the website will be redirected to the payment gateway, where the individual can opt for the payment option of their convenience.
- Next step is to make the payment.
- Lastly, the individual will receive the receipt of payment, which is known as “Challan 280” on a new tab of the browser. It is recommended to save a copy of the receipt of the payment made, as it will be needed at the time of filing the Income Tax Return.
Correction of the errors made during payment
If a taxpayer needs to make changes to the challan details, they must get in touch with their jurisdiction’s assessing officer. An assessing officer (AO) is assigned to each taxpayer for the purpose of evaluating their income tax returns and related matters.
Through the “Know Your AO” page on the e-filing system, you can find the jurisdictional assessing officer. The data is accessible using a mobile-based OTP. As an alternative, one can find their jurisdictional evaluating officer by logging into their e-filing account and visiting “profile settings-My profile-PAN data” on the e-filing portal. Once the individual identifies their jurisdiction’s evaluating officer, they need to go to them in person at their workplace and ask them to remedy the challan’s mistakes. They must submit a letter in the appropriate format and include a copy of the challan.
Important Forms for the filing of advance tax
The form that needs to be properly filed on the specified due dates is Challan No. ITNS 280. The requirements for filling out Challan No. ITNS 280 includes the following:
- PAN card details of the individual.
- Details of the assessment year for which the advance tax has to be paid.
- Lastly, correctly select the payment method.
Judgments on advance tax
Commissioner of Income Tax v. M/S. Hindustan Bulk Carriers (2002)
The time for which interest is due under Section 234B is in question in the current case before the Honourable Supreme Court of India. Three different categories of violations are covered by Sections 234A, 234B, and 234C. Interest is assessed for failure to provide a return of income under Section 234A. When a return of income for any assessment year submitted in accordance with subsection (1) or subsection (4) of Section 139, or in response to a notice submitted in accordance with subsection (1) of Section 142, is submitted beyond the due date or not at all, a penalty is imposed. The interest under Section 234B, to which the current cases are related, is triggered by failures to pay advance tax.
The Supreme Court ruled that when an order under Section 245(D)(4) is passed, followed by the quantification under its sub-section (6), interest must be levied on interest chargeable under Section 234B for the period starting on the first day of April following the relevant financial year until the date of the Commission’s ruling at the applicable rate.
Aop of Sanjaybhai R. Patel and 11 Ors. v. Assessing Officer (2004)
The Gujarat High Court held in this case that sections 234A, 234B, and 234C of the Income Tax Act do not give the Settlement Commission the authority to lower or waive the interest that is due.
Kwality Biscuits Ltd. v. Commissioner of Income Tax (2000)
In this case, the Karnataka High Court ruled that where a corporation pays the Minimum Alternate Tax (MAT), Sections 234B and 234C fines do not apply. It concluded that the provisions relating to advance payment of tax were not applicable because the exercise of computing income under Section 115JA can only be done at the end of a financial year. This is because the assessee won’t be able to ascertain whether or not Section 115JA is relevant until accounts are audited and balance sheets are generated. In opposition to this judgment, the respondent petitioned the Supreme Court for special leave. On April 26, 2006, the Supreme Court issued a non-speaking order dismissing the petition in CIT v. Kwality Biscuits Ltd. (2006).
This case has since been referenced in several arguments. On the other hand, several courts disagreed with the Karnataka High Court and ruled against the assessee in this case.
Jindal Thermal Power Company Limited v. Deputy Commissioner of Income Tax (2006)
In another ruling, the Karnataka High Court set aside its previous ruling made in Kwality Biscuits and declared that Section 115JB is a self-contained code regulating the MAT obligation of firms. As a result, those companies are responsible for paying penalties under Sections 234B and 234C of the ITA which fall behind on the payment of advance tax.
Commissioner of Income-Tax v. Zuari Agro Chemicals Ltd. (2005)
This case was before the Bombay High Court to decide on a substantial question of law that whether, based on the facts and the circumstances of the case, the assessee had underestimated the advance tax payable by him by filing a statement under Section 209A (now omitted), thereby reducing the amount payable in either of the first two installments and therefore liable to pay interest under Section 216 of the Income Tax Act.
With regards to the question of law, the Court observed that an assessee is not required to estimate his current income when submitting a statement under Section 209A(1)(a) of the Tax Code. He determines the advance tax based on the assessee’s total income reported in the return of income or, if higher, the assessed income. However, when the current income is expected to be higher than the income on which tax is being calculated for him and the amount of advance tax so payable by him is expected to exceed 33.33%, such an assessee is required to send an estimate of the current income and the advance tax payable by him on the current income to the income-tax officer before the last advance tax installment is paid under Section 209A(4).
Director of Income Tax, New Delhi v. Mitsubishi Corporation (2021)
In this recent ruling by the Supreme Court of India, the issue related to an assessee’s obligation to pay interest on short payments of advance tax due to the payer’s failure to comply with the Income-tax Act of 1961 regulations by failing to deduct tax at the time of payment.
The Income Tax Appellate Tribunal (ITAT) upheld the appeals and determined that the respondent was not responsible for paying interest under Section 234B when tax at the source was deducted from a payment made to the respondent. The appellant brought a case against the ITAT’s decision before the High Court. However, the High Court denied the appeals and upheld the ITAT’s decision on August 30, 2010. The Appellant has filed a petition with the Supreme Court because he is not happy with the decisions of the ITAT and the High Court.
The Court observed that for failing to pay advance tax, as specified in Section 234B, there is a need to pay interest. While the term ‘assessed tax’ under Section 234B refers to tax deducted or collected at source, the pre-conditions of Section 234B, namely the obligation to pay advance tax and the non-payment or short payment of such tax, must first be met before interest can be assessed while taking the assessed tax into account. Therefore, when interpreting the meaning of Section 234B, the Income Tax Act’s Section 209, which deals with the computation of advance tax payable by the assessee, cannot be disregarded.
Conclusion
The discussion on the fundamentals of paying advance tax comes to an end with the conclusion that the “pay as you earn” scheme is a good way for the government to operate because it enables the receipt of a steady source of revenue throughout the year rather than receiving all tax payments at once, which allows expenses to be incurred. Thus, we, as citizens of India, must do our duty towards our nation with utmost loyalty by paying our taxes; otherwise, we will have to bear the penalties as we have discussed in the article.
Frequently Asked Questions (FAQs)
Are NRIs liable for the payment of advance tax?
Yes, an NRI is required to pay advance tax if their income earned in India exceeds Rs 10,000.
Are senior citizens who earn a pension and interest income, liable to pay advance tax?
No, senior citizens who do not have a business or profession are exempt from the advance tax.
Why do I need to make advance tax payments?
Advance tax payments are advantageous to the government as well as the person or entity making them. It offers a consistent stream of revenue to the government throughout the entire year. From the standpoint of the person or organisation, it lessens the year-end stress of paying taxes all at once. If advance tax is not paid, the taxpayer may be subject to interest charges under income tax law. Therefore, advance tax payments should be made on time.
Does Section 234A apply to revised returns?
Yes, due to the increase in income in the revised return, Section 234A applies to any increased tax obligations. The first return is replaced by the revised return. However, Section 234A must be paid if the revised return contains additional tax.
References
- https://taxguru.in/income-tax/interest-section-234c-income-tax-act.html
- https://taxguru.in/income-tax/advance-tax-interest-section-234a-b-c.html
- https://taxguru.in/income-tax/provisions-advance-tax-income-tax-act-1961-pay-earn-scheme.html
- https://blog.ipleaders.in/section-234c-of-income-tax-act-1961/#Section_234C_of_Income_Tax_Act_1961
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