Under the Income Tax Act, the total tax liability has to be paid in installments as advance tax on or before specified due dates. Credit is given to the assessee for advance tax paid by him at the time of determining his final tax liability. Any remaining amount has to be paid as self-assessment tax before the income tax returns is filed. If the advance tax is paid in excess, it will be refunded to him. The last instalment of advance tax for the financial year 2008-09 is due. The deadline for payment of this instalment of the advance tax is March 15.
According to the Income Tax Act, assessees are required to pay tax in advance in a previous year if their tax liability for the year is likely to be Rs 5,000 or more. Advance tax is payable in respect of the total income of the assessee, which is chargeable to tax in the assessment year. Every income, including capital gains and casual income, are liable to payment of advance tax.
Payment of advance tax depends on the status of the assessee. In case of a noncorporate assessee, up to 30 percent of the advance tax is payable on or before September 15, up to 60 percent is payable on or before December 15, and up to 100 percent is payable on or before March 15 of the previous year. However, any payment of advance tax made before March 31 will be treated as advance tax paid during the financial year.
The assessee needs to approximate the tax liability for the previous year based on projected income, which is likely to accrue to him. The assessee has to compute tax on the estimated current income at the rates in force in the relevant previous year. The statement of estimated income need not be submitted to the income tax authorities while paying advance tax. From the tax so computed , any tax deducted at source has to be subtracted.
After paying the first instalment of advance tax, the assessee can revise his estimate of current income. He then has to pay advance tax on the revised income in the remaining instalments. If despite the legal obligation on the assessee to pay advance tax, he fails to do so, the assessing officer may require him to pay advance tax on his current year's income. Such an order must be passed during the financial year itself.
In case the assessee's own estimate is lesser than this amount, he needs to inform the assessing officer. However, in case his estimate is greater than the amount, no intimation needs to be made and the tax should be deposited.
If the assessee defaults in paying advance tax or if he fails to deposit the exact percentage of advance tax before the specified due dates, he is liable to pay penal interest under the IT Act. According to Section 234B of the Act, interest is payable if an assessee who is liable to pay advance tax fails to pay it or if he pays less than 90 percent of the assessed tax (that is, tax on the total income declared by the assessee minus tax deducted at source).
Simple interest at one percent for every month or part of the month is payable on assessed tax minus advance tax paid, if any, from April 1 of the next following financial year to the date of determination of total income under Section 143(1), or the date of regular assessment, if it is made. For the purpose of calculation , any fraction of a month is deemed to be a full month.
According to Section 234C of the Act, interest is payable if the assessee has not paid advance tax or underestimated instalments of advance tax. In this case also, simple interest at one percent per month is payable on a specified amount for a specified period. Interest is not levied for any shortfall in the payment of advance tax on account of underestimation or failure to estimate capital gains (short or longterm ), or casual income.
The assessee should pay the entire tax payable on such incomes in the remaining instalments of advance tax which are due, or if no instalment is due, the tax should be paid before March 31 of the financial year.