Delayed advance tax attracts 1% interest every month

Its non-payment will be considered a default

December 15 is the deadline for paying the second instalment of advance tax.

Those who have an annual tax liability of more than Rs 10,000 are supposed to pay taxes in advance or by way of advance tax. Advance tax should be paid in the year in which the income is received. Hence, it is also known as the "pay-as-you-earn" scheme.

Individual taxpayers need to pay advance tax in three instalments through the year - 30 per cent should be paid by September 15, another 30 per cent or 60 per cent of the total liability should be paid by December 15 and the remaining (or the entire liability) amount should be cleared by March 15.

Those who haven't paid the first instalment for this financial year or the assessment year 2015-16, can pay it together with the second instalment. That is, they can pay 60 per cent of the tax liability on December 15.

"But with interest on the first instalment for deferring it by three months," said Suresh Surana of RSM Astute Consulting.

If advance tax is not paid on time, then such taxpayers are levied an interest penalty of one per cent per month under Section 234C.

For instance, if an individual has an advance tax liability of Rs 9,000 by September, but he pays only Rs 5,000, he will be charged one per cent interest Rs 4,000 till September. One can finish off the advance tax payment even between March 15 and 31.

If the tax payment is delayed beyond the financial year, then it will be considered to be default in advance tax payment and an extra interest of one per cent a month will be levied in the next financial year till the time the outstanding is cleared.

Under Section 234B interest at another one per cent is payable for Default in Payment of Advance Tax, that is, if 90 per cent of the tax is not paid before the end of the financial year in which income is received.

Experts says the Income Tax (I-T) department is not very particular about salaried taxpayers paying advance tax as most employers deduct tax at source (TDS). Advance tax is applicable when an individual has sources of income other than his/her salary. For instance, if one is earning through capital gains, interest on investments, lottery, house property or business, the concept becomes relevant. While employers deduct TDS on salaries, advance tax is paid on income that has not been subjected to TDS.

Advance tax could be important for those moving jobs. At times, both employers tend to give tax benefits. This leads to an outstanding due at the time of filing tax returns. Hence, those shifting jobs could opt for paying advance tax.

Professionals (self-employed) and businessmen will have to pay taxes in advance as, given their business income, the liability can be huge. The same goes for companies and corporates.

You can pay advance tax using the tax payment challan at the bank branches empanelled with the Income Tax (I-T) department. It can be deposited with the Reserve Bank of India, State Bank of India, ICICI Bank, HDFC Bank, Indian Overseas Bank, Indian Bank, and other authorised banks. There are 926 branches in India that can accept advance tax payments. You could also pay it online through the I-T department or the National Securities Depository site. Any rebate due fetches you an interest of 0.5 per cent every month, or, six per cent annually, as in the case of an income tax refund.