Advance tax and options trading business

Dear rajiv

Advance tax has to be paid for compliance of law i.e. I T act, but it strict compliance attracts in terms of interest u/s234B and 234C.Simply non paymet of advance tax attracts interest payment

I agree with your opinion having difficulty in assessing income in option trading which could lead to loss in year end, but some calculation/estimation has to be done for payment of tax

If at year end its loss then, subject to other income, whatever advance tax you have paid will be refunded and if tax not paid then no further laibility(interest) arise even if there is profit in some quarters.

Dear Ankit,

Thankyou for giving your input and time. May I ask one more thing? I have not paid adavance tax till 15/3/2013. Now if I pay the tax before 31/3/2013, how should I compute the panelty ( @ 1% per month), on mothwise profit or on the final yearend profit?

Regards and thanks.

Dear Rajiv

Tax paid by you on or befor 31march will be treated as advance tax, but still payment made after 15march will still attract mainly section 234C

Penalty you are referring above is interest

Following is just example based on hypothetical figures/amount

Profit from business Rs10Lac, flat rate tax 30%, no cess calculated for now

interest 234B attract if advance tax short of 90%of tax

say if a person deposit 2.5lac as advance tax then it is short by 20000 (i.e total tax is 300000 and its 90% is 270000)

interest shall be from 1april (after the FY, present case 1/4/2013) to the date when paymnet made as self assessment at 1% per month

You can escape interest u/s234B if you paid whole tax by 31 march

For interest u/s234C , advance tax paid after 15march will not help you save interest under this section

and for interest long calculation is to be made

I am attaching a file, it is a suggestive answer of latest CA exam, you can refer calculation method from there,

The qus no7(c) page 26, solution start from page28, please keep in mind that, in calculation of 234C,dont look at  3rd column as it applicable in case of company, so calculation would be slightly changed in column of interest

If still you are unable to understand, i will try to help you

Dear Ankit,

Thankyou for this very elaborate and comprehensive reply. The attached file is equally very helpful. I am going to keep your reply for future use. Thankyou for your inputs and the time you gave to this query. I am sure many others too are going to benefit from your answer. My sincere and best wishes.

Thankyou again.

After going through the attached PDF file in Ankit's reply, what I have gathered, I am putting it through an example. If my interpretation is wrong please point it out.

For an individual (less than 60yrs.). The taxable income as on 31/3 is say Rs.10 lacs. The total tax liability is Rs.1,30,000.0 (Cess not taken for simplicity).

If the person had not paid any advance tax as on 15/9 , 15/12 and on 15/3 but paid Rs. 30,000.0 as advance tax as on 25/3, the instances of penalty on non payment of adv. tax on or before the due dates will be as follows-

a) Since by 15/3 90% of tax(90% of Rs.1,30,000 =Rs.1,17,000) was not paid. There will be an interest payable of 1% on (Rs.1,17,000-Rs.30,000) Rs.87,000.

b) As adv tax of 30% of total tax, ie (30% of Rs.1,30,000) Rs. 39,000 was not paid by 15/9, interest @ 1% per month on Rs.39,000 will be payable for 3 months, ie Rs.Rs.1170.

c) As adv tax of 60% of total tax, ie(60% of Rs.1,30,000) Rs.78,000 was not paid by 15/12, interest @ 1% per month on Rs.78,000 will be payable for 3 months, ie Rs.2340

Hope I am getting it right. Please let me know.  

Yes Rajiv you are right, but some added information

a) period taken would be from 1april2013 to date when total tax paid along with interest(self assessment tax paid)

b) correct

c) correct

d) since payment was not made on 15march then interest also apply it would be 100% of total tax, interest @ 1% for 1month i.e.Rs1300  (130000*1%*1)

So overall liability would be Rs130000+4810(234C)+?? (234B) less Rs30000(paid on 25march)

Another point if person is not filing Tax return through expert like CA/lawyer but filing self then through Income tax department website excel file will be provided free of cost(formulae enabled),. Person has to fill relevant details and interest mention above would be calculated automatically

Dear Ankit,

Yes, it should be 100% payment of tax by 15/3 not 90%. Thankyou for all the clarifications. I will certailnly explore the excel file of IT dept. No, I will certainly take help of an expert but initially I took it up just to understand the full concept and sure, I enjoyed leaning it with your help. Hope other readers too may find this informative.

Thanks Ankit. Hope to read more of your inputs on other queries and get the joy of learning more.

Best wishes.