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Under section 234c of the Internal Revenue Code, failure to pay advance tax results in interest.
Every person with a net tax liability of $10,000 or more for the fiscal year must pay advance tax. This applies to everyone, whether a salaried employee, a professional, a business owner, a firm, or a corporation. A resident senior citizen (i.e., someone who is 60 years old or older during the relevant financial year) who does not earn money through a business or profession is not required to pay advance tax.
The year’s income and tax liabilities are estimated, and a certain percentage of the tax liability is paid at each due date during the year.
If you don’t pay your advance tax by the due date, you’ll be charged interest under sections 234B and 234C, respectively. When the advance tax paid is less than 90% of the tax owed, interest is due under section 234B. Late payment of advance tax is subject to interest under section 234C.
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There is no requirement for advance tax payment for salaried individuals whose tax is deducted at source unless they have other sources of income such as capital gains, interest income, rental income, and so on.
Kavita, for example, earns an annual salary of Rs. 8 lakh, from which her employer has deducted the mandatory TDS (tax deducted at source). On June 30, 2021, she sells shares worth 5 lakh and achieves a short-term capital gain of 2.5 lakh.
Once a capital gain has occurred, it shall be considered for payment of advance tax on or before the following due date, i.e., advance tax on capital gains should be paid for the due dates of 15 September, 15 December, and 15 March in this example.
Kavita’s tax due on 2.5 lakh in short-term capital gains is $39,000 (at 15% plus cess). If Kavita has not paid any advance tax, she can pay the total tax owed of $39,000 on or before March 31 to avoid interest under section 234B.
However, interest under section 234C for late payment of advance tax will still be due because she has not paid advance tax.
For the purpose of determining advance tax due, all deductions, exemptions under the Income Tax Act, and credits to the extent of TDS, tax collected at source (TCS), and minimum alternate tax (MAT) utilisation must be taken into account.
Anita, for example, earns a total of 12 lakh from professional services. She has paid a 1.5 lakh insurance premium. A total of $50,000 in TDS has been deducted.
Anita’s total tax burden, after taking into account the deduction u/s 80C for insurance premiums, is $132,600, with 50,000 TDS deducted. As a result, Anita’s net tax burden stays at 82,600, and she is required to pay advance tax at the stated percentage on the due dates.
For example, Akash now earns a salary of Rs. 12 lakh, from which his employer has deducted the requisite TDS. Akash earns interest on a 25,000-dollar fixed deposit. Interest income is taxed at 30% plus cess for a total of $7,800. Because his net tax burden is less than $10,000, Akash believes he does not need to pay advance tax on interest income. In this scenario, Akash is correct in his assumption.
Samrat, for example, is a non-resident Indian who earns a rental income of 15 lakhs from a residence in India. As a result, his tax liability for FY 2021-22 is expected to be $132,600. On December 31, 2021, Samrat turned 60 years old. He believes that because he is a senior citizen with no business or professional income, he is not required to pay advance tax. Samrat’s belief is incorrect because he is a non-resident Indian and hence is not exempt from paying advance tax. This benefit is only accessible to residents who are over the age of 65 and do not have a source of income from a business or profession.
As we approach the conclusion of the fiscal year, if you have any long or short term capital gains and wish to save tax on them, you should consider booking capital losses that may arise as a result of the present market scenario to offset any existing capital gains.
As a result, there will be no capital gains tax burden and no question of advance tax liability. It’s worth noting that only long-term capital losses can be deducted from long-term capital profits. Long-term/short-term capital gains can be offset by short-term capital losses.