Penalty primer on delayed payments

Santosh Bagrecha, a businessman from Kolkata, was unable to pay his advance tax on March 15. Although his liability isn’t much — Rs 60,000 — he is worried about the next step he would have to take. Whether there will be penalties is his primary concern.

The good news is that he has time till March 31 to make the payment, but there will be a small penalty of one per cent. But this relief comes with a caveat. As Kaushik Mukherjee, executive director, PricewaterhouseCoopers, says, “If you do not pay by July 31, you are not allowed to file your tax returns for the year.”

Since Bagrecha failed to pay the lump sum before the March 15 deadline, he could now pay the entire outstanding amount by July 31 with one per cent interest a month, since March 15. There will be an additional three per cent fine for the deferred payment. This adds up to Rs 64,860. His late payment would cost him an additional Rs 4,860.

Both corporate and individuals are liable to pay advance tax. But this liability arises only if the taxable income is Rs 10,000 after tax deducted at source (TDS). For instance, if the tax on total estimated income for the year is Rs 1 lakh and the estimated TDS from this income is Rs 60,000, the amount payable as advance tax will be Rs 40,000.

However, for salaried, advance tax is not an issue, as it is taken care of by the employer deducting TDS from his salary. Advance tax becomes relevant only when there is income earned through capital gains, interest earned from fixed deposits, lottery rewards, sale of property or business.

You can pay the advance tax in three instalments through the year — September 15, December 15 and March 15. Taxes can be paid in instalments of 30 per cent, 30 per cent and 40 per cent.

“In case there is any short fall in payment, one has time till March 31 to pay the tax with an additional one per cent interest. The law says if you do not pay your advance tax, you are liable to pay interest,” says Homi Mistry, tax partner at Deloitte, Haskins and Sells. “Advance tax can also be paid when you are filing your tax returns,” adds Mistry.

According to Section 234B, if you do not pay 90 per cent of your advance tax in a financial year, you are considered a defaulter. And, according to Section 234C, if you do not pay advance tax instalments, you are charged for deferment of payment. There will also be an interest of one per cent a month and three per cent for each deferred payment.

In Bagrecha’s case, his advance tax payments would have been Rs 45,000 each in the first and second instalments and Rs 60000 in the third.