Tax Gyan - The Makeyourtax Blog

Urgent Notice Individuals: Pay advance tax by June 15

The last date to pay your first instalment of advance tax is tomorrow – June 15, 2016. Till last fiscal, the first advance tax payment date for individuals used to be September 15th but Budget 2016 has made the first instalment payable 3 months earlier now i.e on June 15th this fiscal onwards. Those tax-payers liable to pay advance tax, now have to pay the first instalment by June 15 else pay 1% simple interest per month on late payment.

advance tax due date

This has significantly increased the income tax compliance burden on individual tax payers. As per amendments made in Budget 2016, individuals (except for exempted categories) will now have to estimate their income for the full financial year as early as June 15, compute the income tax that would be payable on that income and pay 15% of that else get ready to shell out interest on late payment at a stiff rate of 1% simple interest per month.

It would be very burdensome for the tax payers to estimate their income for the whole financial year in the very first quarter of the financial year but the same has to be complied by the assesse in order to get away with the interest charges that are levied on deferment of advance tax instalments.

The current advance tax payment schedule for a company is 15%, 45%, 75% and 100% (cumulative) of income tax payable on the full financial year’s income to be paid by 15th June, 15th September, 15th December and 15th March, respectively. Till last financial year, individuals liable to pay advance tax, had to pay 30%, 60% and 100% (cumulatively) of tax payable on the full fiscal’s income by 15th September, 15th December and 15th March, respectively. An individual with a tax liability of Rs 10,000 or more in a financial year is required to pay advance tax in that year as per current income tax law. Budget 2016 has replaced the separate advance tax payment schedule for individuals with the same schedule as applicable to companies.

“Aligning advance tax schedule for individual tax payers is an accelerated revenue collection measure and will be an administrative burden for tax payers. There will be another compliance date to remember and missing it will mean having to pay interest. So instead of 3 there will be 4 advance tax instalments with the first date being Jun 15 followed by Sep 15, Dec 15 and Mar 15 as dates by which advance tax should be paid”, said Sonu Iyer, Partner & National Leader – People Advisory Services, EY to Economic Times.

Impact of proposed change: 

For those individuals whose only or main source of income is salary, the impact of this change would be little or nil because most of their tax payable would be deducted as TDS by the employer. It is the employer’s responsibility to deduct and deposit tax on the salary paid to its employees within the time limits prescribed by the IT rules. In case an employee has a little non-salary income such as taxable interest on bank savings account etc then this can be declared to the employer with a request to add it to salary income computation and deduct tax on this additional income also. In this way, the employee need not bother about paying advance tax on his own. However, in case the salaried individual wants to inform their employers about their ‘other income’ and get the advance tax paid via TDS they would still have to do the exercise of computing estimated income prior to the four advance tax instalment dates.

However, taxpayers with substantial income other than salary (which normally employees prefer not to disclose to employer) will definitely be impacted as they would be required to pay advance tax on this other income (not declared to employer). For taxpayers who calculate and pay advance tax based on estimated income the adverse impact of this change would increase with increase in variation (quantum as well as degree) of actual income from estimated and vice versa. For tax payers who are unable to take out time from their busy schedules (a substantial number fall in this category) to calculate and pay advance tax, the adverse impact would be in the form of significant increase in interest payable on the deferment of advance tax payment.

Practically a majority find it very tedious to calculate and pay advance tax therefore even earlier a large number skipped the first or the first two advance tax payment dates and paid only by the third, therefore advancing the payment schedule by one quarter will increase compliance burden for them.

As per the new amendment if an individual even pays 12% and 36% of the total tax payable for the full fiscal by June 15th and Sept 15th, instead of the full 15% and 45% then he would not be liable to pay interest of 1% on the shortfall in advance tax. However, the real problem in case of advance tax is the fact that a substantial number of people are simply unable to find the time to properly estimate their income for the full financial year multiple times.

Advance tax calculation: 

The advance tax required to be paid by a particular date is a percentage of the total tax that is expected to be payable for the full financial year. Therefore, in order to pay advance tax by a given date an individual tax payer will have to: Accurately estimate his expected income for the full year, calculate the tax that would be payable on this estimated income and then pay advance tax so that the specified percentage of the total tax payable is paid by the dates stipulated.

If the stipulated amount of advance tax, say 15%, is not paid by June 15th then the tax payer will have to pay simple interest @ 1% of shortfall in actual advance tax payable per month for every month that the advance tax has been delayed under section 234C of the Income Tax Act.

Source: Economic Times


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