Understanding Advance Tax & Interest U/S 23B: Key Insights for Timely Tax Planning
What is Advance Tax?
Advance Tax & Interest U/S 23B: Advance Tax means paying the tax dues on the dates given by the income tax department. It will be applicable if the taxpayer is liable to pay a tax of Rs 10,000 or more in any financial year. If such taxpayers don’t pay or fail to pay advance tax on time or default completely, they may be liable to pay interest under sections 234B and 234C.
Applicability
Advance tax is applicable to all the taxpayers even after reducing TDS deduction of Rs 10,000 or more from any sources like salary, professional income, business income etc. The advance tax is not applicable to individual who is 60 or more than 60 years old in case of not having income from business and profession.
How to Avoid Interest u/s 234B
Estimate Your Income: Make a realistic estimation of your total income for the financial year. Consider all sources of income, including salary, business income, rental income, interest, and capital gains.
Calculate Advance Tax Liability: Use the estimated income to calculate your advance tax liability. Refer to the income tax slab rates and apply the applicable tax rates to determine the tax amount payable.
Maintain a Payment Schedule: Create a payment schedule based on the due dates specified by the income tax department. Divide your estimated tax liability into quarterly installments and mark the dates when each installment is due.
Regularly Monitor Income: Keep track of your income throughout the financial year. If there are any significant changes, reassess your advance tax liability and make necessary adjustments to your payment schedule.
Timely Installments: Ensure that you make advance tax payments on or before the due dates mentioned in your payment schedule. It is recommended to pay at least 15% of the estimated tax liability by the first due date, 45% by the second due date, 75% by the third due date, and the remaining balance by the fourth due date.
Use Challan 280 for Payments: Use Challan 280 to make advance tax payments. This form is available online on the Income Tax Department’s website or can be obtained from designated banks. Fill in the required details accurately and choose the correct assessment year for which the payment is being made.
Keep Track of Payment Receipts: Retain the payment receipts and acknowledgment copies as proof of your advance tax payments. These documents will be useful for reference and for filing your income tax return.
Consult a Tax Professional: If you are unsure about calculating your advance tax liability or managing your payments, consider seeking guidance from a tax professional. They can provide valuable insights and ensure that you avoid any interest liabilities u/s 234B.
By following these strategies and staying proactive with your tax payments, you can avoid interest u/s 234B and maintain compliance with the income tax regulations. Remember, timely tax payments not only help you avoid penalties but also contribute to a smooth and organized financial planning process.
Calculating Interest u/s 234B: Methods
Interest u/s 234B shall be imposed by income tax department in 2 cases first when the liability of taxpayer in any financial is 10000/- or more than 10000/- after reducing TDS deduction and he had not paid advance tax, and in other case if taxpayer is paid the advance tax but it is less than 90% of total assessed tax.
The rate of interest under section 234B is 1% of the assessed tax amount on which interest is to be paid will be calculate as rounded off in that way that any fraction of a hundred is ignored and part of a month will be considered as full month. The calculation of interest can be understood by examples given below
Example: 01
TOTAL LIABILITY 50000/-
ADVANCE TAX PAID 00/-
TDS 00/-
DATE OF BALANCE TAX PAYMENT 15-JUNE
Interest calculation:
Total liability x 1% x no. of delayed month
50000 x 1% x 3(apr, may, jun) = 1500/-
Example: 02
TOTAL LIABILITY 50000/-
ADVANCE TAX PAID 42000/-
TDS 00/-
DATE OF BALANCE TAX PAYMENT 25- MAY
Interest calculation:
Advance tax is paid 42000/- which is not equal to 90% OF 50000/- i.e. 45000/-
Total tax – advance tax x 1% x no. of delayed month
50000-42000= 8000 x 1% x 2 (apr, May) = 160/-
Example: 03
TOTAL LIABILITY 150000/-
ADVANCE TAX PAID 5000/-
TDS 130335/-
DATE OF BALANCE TAX PAYMENT 25- JULY
Interest calculation:
Total tax- TDS = Assessed tax
150000-130335= 19665
Advance tax is paid 5000/- which is not equal to 90% OF 19665/- i.e. 17699/-
Assessed tax- advance tax x1% x no. of delayed month
19600(fraction of 100 ignored) -5000=14600*1% x 4(apr, May,jun,july) =584