DELAY IN PAYMENT OF INCOME TAXES BY ONE DAY, WHAT IT COSTS TO YOU?

 

Hello everyone

Many of you must be aware about the provisions about paying Advance Tax under the income tax act 1961, but how accurately is the question we will discuss today.

 Advance Tax

 The provision says that if a person’s estimated tax liability exceeds Rs 10,000 in a year, he has to pay advance tax in the year of earning that income itself in four installments.

The tabular presentation of due date is produced below for your reference:-

 

Due date	Advance tax payable
On or before 15th June	15% of Advance tax
On or before  15th September	45% of Advance tax
On or before  15th December	75% of Advance tax
On or before  15th March	100% of Advance tax

 

Let’s take a simple example to understand things further.

Suppose Mr. Jain’s yearly tax liability comes out to be Rs. 4,00,000/-. So he should pay advance tax as follows to avoid any interest payment.

 

Date	%	Amount
14-06-2022	15%	60,000.00
14-09-2022	45%	1,20,000.00
14-12-2022	75%	1,20,000.00
14-03-2023	100%	1,00,000.00
	TOTAL	4,00,000.00
YEARLY TAX LIABILITY		4,00,000.00

 

Since Mr. Jain has hired a good tax consultant, he pays the advance tax one day before the due date always, thanks to the office staff of tax consultant who reminds Mr. Jain every quarter about paying Advance tax in time.

Now let’s take a scenario of Mr. Tiwari who manages his business as well as taxes by himself and pays advance tax every time just one day after the due date i.e. on 16th, due to his pre occupancy in business related work.

Let’s see what this one day delay can costs to him.

Again the yearly Tax Liability is Rs.4,00,000.

 

Due Date of Payment	Date of Payment	%	Amount	Interest under sec 234C
15-06-2022	16-06-2022	15%	60,000.00	1,800
15-09-2022	16-09-2022	45%	1,20,000.00	3,600
15-12-2022	16-12-2022	75%	1,20,000.00	3,600
15-03-2023	16-03-2023	100%	1,00,000.00	1,000
		TOTAL	4,00,000.00	10,000

 

 Now let’s break the interest calculation under section 234C.

Since, Mr. Tiwari has paid the advance tax but with one day delay, the common understanding among the general public is pay one day interest and get rid of the taxes, but this is not the case.

Here delay in one day is costing you 3 months interest. Let’s see how :

Since 15% of tax i.e. Rs 60,000 is to be paid by 15-06-2022 and up to 15-06-2022 Mr. Tiwari has paid Rs.0, he shall be liable to pay simple interest at the rate of one per cent per month for a period of three months on the amount of the shortfall from fifteen per cent or forty-five per cent or seventy-five per cent, as the case may be, of the tax due on the returned income.

Well, this may sound irrational to pay interest for 3 months for a single day delay in payment but this is the law and everyone must adhere to it.

 “Beware of False knowledge; it is more dangerous  than ignorance”

“ DO TAKE TAX COMPLAINCES SERIOUSLY”

               “THINK TWICE, ACT WISE”

Study Material and important links :-

1. https://www.incometaxindia.gov.in/Pages/tools/income-tax-calculator-234ABC.aspx

2.  Section 234A, 234B ,234C of the Income tax act .

What is Section 234A relating to Interest payable for default in furnishing the return of income?

Where the return of income for any assessment year is furnished after the due date or is not furnished, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month for the period commencing on the date immediately following the due date upto the date of furnishing the return (in cases where return is furnished after the due date) or upto the end of the Assessment Year (in cases where no return is furnished) on the amount of shortfall in total income tax payable by the assessee.

In simple words, interest @ 1% per month is payable on the amount of income tax paid after the due date for filing of the return.

What is Section 234B relating to Interest payable for default in payment of advance tax?

An assessee who is liable to pay advance tax has failed to pay such tax or where the advance tax paid by such assessee is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month for period from the date on which the payment of advance tax became due on the amount of shortfall in the amount of advance tax paid.

In simple words, interest @ 1% per month is payable on the amount of income tax paid after the end of the financial year.

What is Section 234C relating to Interest payable for deferment in payment of advance tax?

An assessee, (other than an assessee who declares profits and gains in accordance with the provisions of sub-section (1) of section 44AD or sub-section (1) of section 44ADA, as the case may be) who is liable to pay advance tax under section 208 has failed to pay such tax or

the advance tax paid by such assessee on its current income on or before the 15th day of June is less than fifteen per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of September is less than forty-five per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of December is less than seventy-five per cent of the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one per cent per month for a period of three months on the amount of the shortfall from fifteen per cent or forty-five per cent or seventy-five per cent, as the case may be, of the tax due on the returned income;

the advance tax paid by the assessee on the current income on or before the 15th day of March is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one per cent on the amount of the shortfall from the tax due on the returned income.

Provided that (a) if the advance tax paid by the assessee on the current income, on or before the 15th day of June or the 15th day of September, is not less than twelve per cent or, as the case may be, thirty-six per cent of the tax due on the returned income, then, the assessee shall not be liable to pay any interest on the amount of the shortfall on those dates.

(b) an assessee who declares profits and gains in accordance with the provisions of sub-section (1) of section 44AD or sub-section (1) of section 44ADA, as the case may be, who is liable to pay advance tax under section 208 has failed to pay such tax or the advance tax paid by the assessee on its current income on or before the 15th day of March is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one per cent on the amount of the shortfall from the tax due on the returned income.

For any suggestion or queries you can reach out to me at caakshatmodi@gmail.com or at 9028912025.

You can follow me on other social media handles from below links :-

https://www.linkedin.com/in/akshat-modi-2ba297a0

https://www.facebook.com/akshat.modi.372

https://www.instagram.com/akshat3636

https://twitter.com/ModiAkshat?t=k5aO4-AqiuUKUXfnu4Fsdg&s=08

https://t.me/fcaakshatmodi

https://g.page/r/Caz8pLU7ya9SEA0

Disclaimer :- This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.