Advance tax payment by salaried employees
The title of this article may amaze many tax payers, particularly all those tax payers who are salaried employees but it’s true that even salaried employees are liable to pay advance tax. Let’s see when.
There is a misconception that salaried employees are not liable to pay as their tax on income is already paid by their employer; hence, they have no obligation, nor liability, nor responsibility to make payment of any advance tax. This statement is correct only when salaried employees have only salary income but what happen when they have income from other sources like Interest from Bank FD, Investment Income. The advance tax is definitely payable even by salaried employees on their other income.
Following conditions must be checked to know whether advance tax is payable or not:
- If they have any income in addition to salaried income (including interest income from Fixed Deposits/ Saving Accounts, Capital Gains, etc) and
- The difference between actual tax liability on such income and TDS (Tax Deduction at Source) is more than Rs 10,000.
Let’s explain the concept of advance tax liability on salaried employees by an example.
Mr. Sanyam has annual salary of Rs 50 lakhs and he falls in highest tax bracket of 30%. He has invested Rs 3 Lakhs in Bank fixed deposit which fetches him interest of 10% every year.
For salary income of Rs. 50 lakhs, the employer of Sanyam deducts TDS and submits the same to the income tax department and hence Sanyam need not to be worried about advance taxes on his salary income.
Interest income = Rs.20,00,000 x 10% = Rs 2,00,000
- Under Section 194A banks deducts TDS at 10.3%. So the bank would deduct Rs. 20,600 (Rs 2,00,000 x 10.3%) as TDS and deposit the same on behalf of Sanyam to income tax department.
- Since Sanyam’s income falls in highest tax bracket, his actual tax liability on interest received on Fixed Deposit comes out to be Rs. 61,800. So Sanyam is liable to pay Rs. 41,200 (61,800 – 20,600) more as income tax.
- Since this income tax liability difference is more than Rs 10,000 Sanyam would need to deposit advance taxes.
Advance Tax Dates & Tax Payable
Under the Income-tax law as per the provisions contained in section 208 of the Income-tax Act, 1961, it is an obligation cast on every tax payer to make payment of advance tax during the financial year. For individual assesses, advance tax is payable in installments, before the below mentioned dates:
|On or before||% Advance Tax|
|September 15 of Financial Year||Atleast 30% of estimated tax payable|
|Dec ember 15 of Financial Year||Atleast 60% of estimated tax payable|
|March 15 of Financial Year||Atleast 100% of estimated tax payable|
For a corporate, there are 4 installments applicable. Apart from the above there is 15 per cent tax payable by 15 Jun of every financial year.
Here Tax Payable means = Tax due minus Tax deducted at sources.
Please note that to check Rs.10,000 cut off limit you have to consider full amount of tax due but for interest calculation amount is to be taken is total tax due minus tax deducted/ collected at source (TDS/TCS).
So in our example of Mr. Sanyam is liable to pay:
- At least Rs.12,360 (30% of 41,200) as advance taxes by September 15, of Financial Year.
- At least Rs. 24,720 (60% of 41,200) as advance taxes by December 15 Financial Year [This included previous installment of Rs 12,360]
- And Rs.41,200 before March 15, of Financial Year.
So as per rules Mr. Sanyam must deposit the above calculated amount as advance tax, otherwise he has to pay interest u/s 234C and 234B, a Penal interest of 1% simple interest per month on outstanding tax is charged u/s 234C and 234B.
Case 1: Mr. Sanyam skipped the advance tax payment in September and December and paid on March 31, 2013.
The interest he needs to pay is:
- 1st installment penal interest: Rs 12,360 x 3 months x 1% = Rs 371
- 2nd installment penal interest: Rs 24,720 x 3 months x 1% = Rs 742
- Total penal interest = Rs 1,113
So on March 31, 2013 has to pay Rs 41,200 along with additional Rs 501 as penal interest u/s 234C
Case 2: Mr. Sanyam did not pay in Financial Year and pay the tax during filing of Tax Return on 31st, July of Financial Year.
- In this case there would be additional penal interest from April to July u/s 234B. This interest comes to be Rs 41,200 x 4 months x 1% = Rs 1,648
He has to pay this Rs 1,648 (u/s 234B) along with Rs 1,113 (u/s 234C) calculated above as the penal interest.
What to do when you have other income from Capital Gain?
If you have Income from Capital Gain then Income tax rules/act grant you exemption from depositing installment of advance due on capital gain amount before the accrual of such capital gain Income, but this is subject to condition that you pay balance tax with in Financial year.
If you are unable to deposit the advance tax due on capital gain with in financial year then above exemption will not be available to you.
Suppose a person earned income from capital gain Rs 10,00,000/- (LTCG) on March,14 and advance tax due is Rs 2,06,000/- .In this case, if person pay his advance tax before ending of Financial Year i.e. by 31st March then no interest is to be charged u/s 234C but if he does not pay advance tax by 31 March , then interest u/s 234C will be payable by him from the date of first installment due to the date till the amount paid.
Let’s say he has paid tax on capital gain with the Return i.e. on 31st July. Now the tax liability will be.
Interest u/s 234C
- 1st Installment penal interest: Rs 61,800 x 3 months x 1% = Rs 1,854
- 2nd Installment penal interest: Rs 1,23,600 x 3 months x 1% = Rs 3,708
- 3rd Installment i.e. full payment penal interest: Rs. 2,06,000 x 4 months x 1% = Rs,8,240
Interest u/s 234B
- In this case there would be additional penal interest from April to July u/s 234B. This interest comes to be Rs 2,06,000 x 4 months x 1% = Rs 8,240
He has to pay this Rs 8,240 (u/s 234B) along with s 13,802 (u/s 234C) calculated above as the penal interest.
Why to take Stress?
Why not disclosing all your other incomes to your employer, so he deducts and pay taxes accordingly on your behalf? This is an easy way out of this hassle of calculating taxes and paying advance tax.
Please Note: Since Financial Year 2012-13 Senior citizens who have no income from business or profession are exempted from paying advance taxes. Accordingly, now the senior citizen could pay tax after the Financial Year ends on March 31 as “self assessment tax” on taxable income before filing returns.
How to Pay Advance Tax?
If last date to deposit is holiday in Bank:
If last day for payment of advance tax is a holiday in bank, the assessee can make the payment on the next immediately following working day.
Mode of advance Tax : As per circular number 5/2008 ,all corporate assessees and all other assessees (who are subject to compulsory audit under section 44AB ) is required to deposit tax through online mode only. Further online payment can be done through friends /relative account also.
In case you are going to pay advance tax manually
Download Advance Tax Challan
https://onlineservices.tin.nsdl.com/etaxnew/tdsnontds.jsp and submit it to the nearest bank branch which deals with income tax.
On who’s name advance tax Cheque is to be issued
To deposit tax through cheque you should issue cheque as under
“your bank name a/c Income Tax” suppose you are going to deposit tax in SBI Bank then to cheque should be issued in favour of.
“SBI Bank A/c Income Tax”
To conclude, please do remember to comply with your tax obligations for payment of your advance tax and before jumping to the conclusion whether or not you are liable to pay advance tax, please work out tax liability on your other income, other than salaried income but relax and enjoy if your other tax payable is less than Rs.10,000/- per annum because then you need not understand the ABCD of advance tax at all.