How to save money by timely paying your Taxes

Navigating the complex realm of income tax filings can be a daunting task for many taxpayers. One common oversight is the tendency to calculate tax liability only at the time of filing Income Tax Returns (ITR), often resulting in avoidable interest payments to the government.?

This blog post will give insights on essential provisions to safeguard your hard-earned money from unnecessary payments of interest on delayed tax payments and the interest liability that may arise up to the processing of the ITR in a normal situation.

Situations leading to the interest liability?

The income-tax liability on your total income can be discharged by way of a claim of?credit for tax deduction at source (TDS), tax collection at source (TCS), payment of advance tax and payment of self-assessment tax, in addition to tax credit and tax relief if any are available. The interest liability normally arises in the following circumstances

• Prepaid taxes, such as TDS or TCS, are less than the tax payable.?
• Delay in filing the ITR,
• Delay or short? payment of advance tax in the instalments prescribed
• Delay in payment of? self-assessment tax?

On the income under the heading "Salaries,"? the employer is required to make TDS at the average rate of income tax. Further, it is to be insured by the employer that the tax payable on the salary income, including any other income disclosed by the employee in Form-12BB and the income earned from any other employer intimated in Form-12B, is taken into consideration while making TDS. In such a situation, the question of interest liability may not normally arise except where? Form-12B is not filed or any income earned is not disclosed in Form-12B or 12 BB.?

Interest for delay in submission of Return (ITR)?

As per Section 234A, where an original, belated or updated ITR is furnished after the due date, simple interest at the rate of 1% for every month or part of a month is to be paid beginning from the next day of the due date of filing the ITR to the date of furnishing the ITR. The interest is to be paid on the tax on the total income as determined on processing of ITR, and where a regular assessment is made, on the total income determined under regular assessment, However, such tax is determined after reducing prepaid taxes and tax credits allowable, such as advance tax paid, tax deducted or collected at source, relief? u/s 89, foreign tax credit, etc.

Interest for defaults in advance tax payment?

?[ Section-234C]

As per section- 208, the advance tax becomes payable in a case where tax payable computed on estimated income (including agricultural income) for the financial year works out to Rs.10,000/- or more after reducing the amount of TDS/ TCS (paid or credited) on any income of the financial year. In cases where no advance tax is paid? or advance tax is less than 90% [Section-234B], a person? who is required? to pay advance tax has–

• ?failed to pay such tax, or
• ?the advance tax paid is less than 90% of the assessed tax

Such person shall be liable to pay simple interest at 1% for every month or part of a month for the period beginning from the 1st April next financial year to the date of determination of total income on the processing of return u/s 143(1), on

• the assessed tax, in cases where no advance tax is paid and?
• in other cases, on the?difference between the assessed tax and advance tax.

However, where self assessment tax is paid by the assessee u/s 140A or otherwise, interest is calculated up to the date on which the tax is so paid and reduced by the interest paid under u/s 140A towards the interest chargeable under section- 234B

The "assessed tax" for the above purpose is? the tax on the total income as reduced by the amount of TDS or TCS, tax relief? u/s 89, relief of tax under Double Taxation Avoidance agreement u/s 90 or 90A, deduction of tax u/s 91, tax credit u/s 115JAA or 115 JD?

Interest on short payment of advance tax instalments?

[ Section-234C]

Every person who is liable to pay advance tax is required to pay such tax in instalments on or before each of the due dates given below, except in a case where the income from business is disclosed on a presumptive basis under Section 44AD and the income from the profession disclosed on a presumptive basis under Section 44ADA, in respect of which the whole of the advance tax is required to be paid on or before March 15th of the financial year:

As per section 210, the amount of the installment or installments of advance tax may be increased or reduced in the remaining installment or installments.

Where in any financial year a person (other than a person in whose case the? profits and gains of business are declared on the presumptive basis under section 44AD or the profits and gains from profession are declared on a presumptive basis under section 44ADA), has–

• ?failed to pay such tax, or
• ?tax paid upto 15th June 15 is less than? 12%, 15th September is less than? 36% and 15th December is less than 75% of the tax due on the returned income,

Such a person is required to pay simple interest at 1% per month for a period of 3 months on the amount of the shortfall and where the advance tax paid on or before March 15th? is less than the tax due on the returned income, then simple interest at 1% on the amount of the shortfall from the tax due on the returned income.

The following are the exceptions to the above provision:-

(i) Any person? who declares profits and gains in accordance with the provisions of section 44AD (1) or section 44ADA (1) if fails to-?

• pay advance? tax, or?
• the advance tax paid on or before March 15 is less than the tax due on the returned income,?

Such a person shall be required to pay simple interest at the rate of 1% on the difference between the amount of tax due on the returned income and the amount of advance tax paid. Example- The tax due on the return income is Rs 1,00,000/-, and the advance tax paid on or before March 15 is Rs 90,000/-. The interest at the rate of 1% will be charged on the difference between Rs 1,00,000/- and Rs 90,000/- that is, Rs 10,000/-

(ii) Where shortfall in the payment of the tax is on account of under-estimate or failure to estimate—

• ?the amount of capital gains; or
• ?Income from lotteries, crossword puzzles, races, gambling, betting, etc.
• ?income that falls under the heading "Profits and gains of business or profession" if it does so for the first time; or
• the amount of dividend income

and the person?has paid the whole of the amount of tax payable in respect of income referred to above as part of the remaining installments of advance tax that are due or where no such installments are due, by the 31st day of March of the financial year.

CONCLUSION

Proactive tax planning and adherence to payment timelines are important in preventing unnecessary interest burdens. By understanding the intricacies of interest liabilities, you can safeguard your finances and contribute to a smoother, stress-free tax filing experience.

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[ Disclaimer- The article is only for educational purposes, covering limited aspects of relevant provisions of the Income Tax Act. The relevant provisions of the Income-tax Act may be referred to, for complete understanding.]