25 November 2018

What is advanced tax and interest u/s 234A, 234B, 234C, 234D

Introduction

As the name suggest, advanced tax is paying tax in advance. We know that in the case of self-assessment tax, assessee need to pay tax after the end of financial year (ie: assessment year). In the case of advanced tax, the assessee have to estimate his/her annual income tax liability for the financial year and he/she have to pay the tax in a predefined instalment on the same financial year. Unlike self assessment tax you cannot pay advance tax after the financial year. In case you failed to pay or pay less advance tax, interest will be imposed on you (see below for interest details). If you pay more advanced tax then you can claim refund for the excess amount you paid, by filing income tax return. So, paying more advanced tax is good idea than paying less. Remember,  Advance tax is mandatory for assessee, whose income tax liability is exceeds Rs. 10,000.

Instalment of the advanced tax for the assessment year 2018-19:


Period Amount need to be cleared On or before
First-quarter Up to 15% of total tax 15th June
Second-quarter Up to 45% of total tax 15th September
Third-quarter Up to 75% of total tax 15th December
Fourth-quarter Up to 100% of total tax 15th March

Interest U/S 234A

When you failed to file income tax return within the due date, a simple interest @1%/month will be imposed on you under section 234A. Suppose you have an outstanding income tax liability and the last date for filing the income tax return in  is 31st July, 2018. Now let me assume that you paid the tax and filed the return on 1st August 2018. In that case you will be liable to pay interest u/s 234A on the outstanding tax liability.

Interest U/S 234B

If your income tax liability exceeds Rs. 10,000 and you are liable to pay advance tax, but you do not pay or pay but less then 90% of advance tax, in both situation a simple interest @1%/month will be imposed on you under section 234B.

Interest U/S 234C

Even if you paid 100% of the advance tax till the end of the financial year, you should not underestimate the instalment instructed by the income tax department. If you pay advance tax less than 12% on or before 15th June, or less than 36% on or before 15th September, or less than 75% on or before 15th December, or less than 100% on or before 15th March, a simple interest @1%/month will be imposed for all the cases, till the date of actual payment of the short fall.

Interest U/S 234D

As I said before, you can claim refund in case you has paid excess amount of advance tax by filing income tax return. Now let me assume you claimed refund but wrongly claimed more than what you were actually eligible for, in that case a simple interest @0.5%/month will be imposed on you.
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