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Karniti Part-2: Pay advance income Tax & relax

CA Umesh Sharma 
on 17 September 2013

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Keeping conversation between Lord Krishna and Arjuna as the foundation we will learn certain basic financial and tax matter. Let us try to get answers to our questions in a bit different and joyful manner. The character of Arjuna will be played by the common man or tax payer and the character of Lord Shri Krishna the Expert for giving solutions to all problems.

This is a small attempt to get answers to our queries related to tax matters in simple manner. There is no intention of hurting anyone’s religious feeling and this is a small attempt of knowledge sharing.

PAY ADVANCE INCOME TAX AND RELAX

Lord Krishna: Arjuna, it seems that many restless Tax payer devotees are busy in some calculations?

Arjuna: Lord, They have to pay First instalment of Advance Tax as per Income Tax Act on or before 15th September for the financial year 2013-14.

Lord Krishna: Oh, Yes. Advance Tax should be paid by making appropriate planning otherwise as per Income Tax Act, Interest will be charged and there are chances of enquiry from the department also. Further 15th September was holiday, so they can pay advance tax on 16th September also. In any Act, if the due date is holiday, then subsequent working day is considered as due date.

Arjuna: That’s good, Lord Krishna, Who are required to pay Advance Tax, please explain in brief?

Lord Krishna: Listen Arjuna carefully, the provisions of Advance Tax will apply to all taxpayers whose income tax payable during the year exceeds `. 10,000/-. However, provisions of advance tax are not applicable to the following taxpayers:

1. Whose gross turnover during the year is less than `1 crore and they have opted to pay tax under presumptive basis provision u/s 44AD i.e. income tax @ 8% of turnover.

2. Senior citizens having age of more than 60 years and not having income from business or profession.

Further persons having salaried income may not have to pay advance tax as their income tax on the total income is being deducted and paid to the government by the employer in the form of Tax Deducted at Source (TDS).

Arjuna: Understood, but when and how much advance tax is to be paid?

Lord Krishna: Dear friend Arjuna listen, the corporate taxpayer will have to pay 1st Instalment of Advance tax @ 15% on or before 15th June, 2nd Installment @ 45% on or before 15th September, 3rd Instalment @ 75% on or before 15th December and Final Instalment @ 100% on or before 15th March, on the basis of estimated income and tax thereon during the year. Simultaneously for non-corporate assessee 1st instalment @ 30% on or before 15th September, 2nd instalment @ 60% on or before 15th December and last instalment @ 100% on or before 15th March. For e.g. if annual tax is `. 1,00,000/- then 1st instalment will be for `. 30,000/- and on the same basis further instalments will be paid. The tax paid after 15th March and before 31st March will also be considered.

Arjuna: How Advance Tax is to be calculated?

Lord Krishna: Dear, The taxpayer will have to calculate estimated net taxable income and income tax thereon for the year. Then deduct Tax Deducted at Source (TDS) from the total tax payable and calculate the installments to be paid on the balance tax payable as stated above. Another simple method to calculate and pay advance tax is to consider last year’s Total Income tax paid with current year’s approximate increase in the income and calculate advance tax on it. For e.g. if in the last year tax of `. 1,00,000/- is paid and in current year considering approximate 20% growth, income tax to be paid will be `. 1,20,000/- then pay advance tax accordingly. Every businessman should pay advance tax after considering increase or decrease in the business income for the year.   

Arjuna: Fine, What will happen if advance tax is not paid?

Lord Krishna: Arjuna please note down that, if advance tax is not paid then interest @ 1% per month will be charged. Further enquiry from the department may be initiated. Legal action may be taken on the persons not paying advance tax of large amount or habitual defaulters. In this information technology era Income Tax Department gets lot of information and on that basis Income Tax Department may send notices for recovery of taxes.   

Arjuna: Lord Krishna, but Why Government collects taxes in advance?

Lord Krishna: As businessman prepares annual budget, government also prepares its annual budget. Government takes review of its income and expenses from the TDS and Advance Tax collected by it quarterly. It is a part of total tax collection system. If any tax recovery provisions are made applicable for taxpayers at a single time it becomes financial problem for them. Hence in a good tax payment system, time should be given to the taxpayers for paying taxes. Therefore if advance tax is paid in regular installments by the taxpayers the burden of paying tax at the yearend will not arise and regular updating of taxpayers accounts happens. Due to current financial crises advance tax payment may be hampered. See, Today’s taxpayer is busy in paying many installments such as Bank Loan, Insurance, etc. As we all are aware if “HAFTA” (i.e. “installments”) are not paid many things get hampered. A good business policy and tax system protects taxpayer from such corrupt practices. Note down the TAXMANTRA “Law abiding person is not afraid of anyone”. Hence Pay tax and relax.

CA UMESH SHARMA


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