(March Ending Special Part 2)
PAY AS YOU EARN – Advance Tax
Arjuna (fictional character): Krishna, before 15th March last installment of advance tax will have to be paid. What precautions taxpayers should take?
Krishna (fictional character): Arjuna, in last article we discussed about how to prepare comparative balance sheet and profit and Loss account. Thereby taxpayers will come to know about approximate income of the financial year 2013-14 and accordingly last installment of advance tax will have to be paid.
Arjuna: Before paying last installment advance tax, what all things should be considered?
Krishna: Arjuna, Taxpayers should calculate approximate profits of the financial year and income tax thereon. From the Income Tax, TDS and advance tax already paid and which is reflected in Form 26 AS will have to be deducted and last installment of advance tax should be paid. 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 Rs. 1,00,000/- is paid and in current year considering approximate 20% growth, income tax of Rs. 1,20,000/- will be payable. Every businessman should pay advance tax after considering increase or decrease in the business income for the year.
Arjuna: What will happen if advance tax is paid in short / excess?
Krishna: As good deeds helps everyone in future, if excess advance tax is paid it does not go in vain. Income tax department gives refund of the excess tax paid along with interest. If less advance tax is paid then at a later date tax along with higher interest will have to be paid and also will have to face notices from the department.
Arjuna: What will happen if advance tax is not paid?
Krishna: Arjuna, if advance tax is not paid then interest will have to be paid @1% per month and one may face enquiry from the department. Further penalty may be imposed on the taxpayers who are required to pay high amount of advance tax. Due to computerization income tax department gets lot of information, on the basis of which department sends advance tax notices asking for payment of taxes.
Arjuna: How taxpayer should take decisions related to tax in his life?
Krishna: Arjuna, as in life it is said that “Take one step back to move two steps forward” similarly in income tax, decisions of upcoming or current year are taken on the basis of Profit and Loss of the previous years. In life future plans are made after considering present situation and circumstances, similarly advance tax will have to be paid on the basis of income of the current year. As deeds of past reflect present personality, irregular tax payment may lead to enquiry from the department. In urge to save some money people often feel happy by paying less tax after adjusting profits but in long run it might end up in big problem. It is also proved from the old saying “As you sow, so shall you reap.” Hence PAY your Advance tax AS YOU EARN
Tags Income Tax