What happens if I don't pay Advance Tax?

Many of us get confused while dealing with the concept of advance taxes and avoid paying them. Now, while you might think that you can simply pay the tax liability at the time of filing the ITR, you will have to pay a penalty in the form of interest and this in turn would increase your tax liability.

How can you save yourself from such a penalty?

Simple, by paying your advance tax on time. If your tax liability in the entire financial year(FY) exceeds ₹10,000, you are liable to pay advance tax in quarterly instalments.

You can read the below topic to understand all about advance tax and its due dates.

Advance Tax: Applicability, due date, and more.

What is the penalty?

In the case of advance taxes, there can be two scenarios, one, you have not made any payment of advance tax in the entire FY.

Second, you have paid the advance taxes, however, the taxes paid are less than your actual tax liability.

Let us understand the interest penalties that will be applicable in both these cases.

Default in Advance Tax Payment: If you have not made any payment of advance tax in the entire FY or the advance tax paid is less than 90% of the tax liability, u/s 234B interest is applicable at 1% for the month or part of the month.

For example, you have a tax liability of ₹60,000. You have not paid any advance tax and at the time of filing the return on July 15, 2022, you paid the entire tax liability.

Since you have not paid any advance tax, the interest of ₹2,400 (₹60,000*1%*4 months) will be levied.

Note: Interest u/s 234B is levied from April 1 of the next financial year.

Deferment in Advance Tax Payment: If you fail to make the payment for advance tax installment or the amount paid is short then under section 234C interest is levied at 1% for the month or part thereof.

For instance, you have a total tax liability of ₹4,00,000, and the advance tax installments paid are as under:

You might think that there is some outstanding liability in Q2 but there is no interest liability calculated. So the catch is, that ideally, you should pay 15% or 45%, but it’s tough to accurately estimate your tax in the first and second quarters as it is just the beginning of the financial year. So, even if you pay 12% or 36%, you won’t get hit with interest. Similarly, for the last quarter if the advance tax paid is more than 90% of total tax liability then no interest will be levied.

Hence, to avoid this penalty at the end of the year, make sure you pay your advance taxes on time.

2 posts were merged into an existing topic: AMA: All About Advance Tax