Tackling Intimation About Low Or Zero Advance Tax Payments

Taxpayers have to ensure that they are meeting the various requirements of the Income Tax Act throughout the year and not just at the time of filing their tax returns.

One of such requirements is with respect to the advance tax, which has to be paid by them if their tax liability is above Rs 10,000 in the year. One of the things that several taxpayers have been facing this year is an intimation from the tax department if they have paid a low advance tax or not paid this at all.

This situation should not be a cause for concern and here is how this should be tackled.

Advance Tax

The first condition that has to be met for the payment of advance tax is that the taxpayer has to be covered under the guidelines. An individual who has to pay more than Rs 10,000 as tax would have to pay advance tax. This can happen when the income earned by the individual does not have the full amount of tax payable deducted at source due to a lower rate. If the advance tax is not paid, then it would have to be paid along with interest later.

The important thing is that a senior citizen who does not have business income does not have to pay advance tax, so they are out of the ambit of this requirement. The advance tax has to be paid in four instalments for individuals with 15% of the amount to be paid before June 15, 45% of the amount before Sept 15, 75% of the amount before Dec. 15 and then 100% of the amount before March 15.

Estimation And Working

The main difference between normal self-assessment tax and advance tax is that for self-assessment tax, the details of the income for the year are already available, and based on this, the tax calculation is made.

For advance tax, the individual has to first estimate the income that would be earned during the year. This is not always easy, especially for those who are professionals or business income earners, because there might not be regularity in receipts.

Hence, the estimation and working for the tax calculation are important, and this might even change during the year for the taxpayer, due to which they will have to revise their advance tax payments too.

Intimation And Action

This financial year, the income tax department has been proactively sending intimations to a lot of taxpayers who have either not paid advance tax or paid a lower advance tax than last year.

To understand this, one has to look at the information that the tax department is looking at. If there is high income for the last year and then there are large expenses or high value purchases and then there is no advance tax paid, then this is flagged in the system. This, plus other kinds of mismatch of data, is the main reason why such intimations might be sent to the taxpayer.

On their part, the taxpayer has to be clear about their position and they need to have their working ready. If there is either lower income or a situation where they need not pay advance tax based on their estimation of income, then they should stick to their position. There is no obligation to pay advance tax and if there is a shortfall, then they would need to pay at the time of filing their returns along with the necessary interest.

However, there are times when future income is not sure or it is likely to reduce and in such a situation, the advance tax payment might not be needed.

Similarly, there might be a large tax deduction in some other area which might not require the payment of advance tax. If the non-payment is due to this being forgotten, then the intimation is a good wake up call to take action. On the whole the actual situation faced by the taxpayer will determine the exact action.

Arnav Pandya is founder Moneyeduschool

The views expressed here are those of the author, and do not necessarily represent the views of BQ Prime or its editorial team.