Pre-Payment Of Income Tax

According to the Income Tax Act, 1961, there are two methods of pre-payment of taxes –Tax Deduction at Source (TDS) and payment of Advance Tax. In case of non-payment or short payment of Advance Tax, the assessee is required to pay interest at the rate of one per cent per month or part thereof.

Query) I am an employee of a PSU. My income comprises of salary and interest on FDs. While tax on my salary was deducted at source as per the applicable rates, tax on the interest income was deducted at source at the rate of 10 per cent by the bank. Since I come under the 30 per cent slab, I deposited the remaining tax at 20 per cent on the interest income of Rs 1.40 lakh I earned during FY2012-13. The said tax was deposited on July 25, 2013 under Self-Assessment Tax and my tax return was filed in Form No. ITR 2 by e-filing on July 26, 2013. Could you advise me on the following points?

1. Am I liable to pay penal interest on the tax deposited on July 25, 2013? If yes, then from what date and at what rate?
2. Where is this amount of penal interest to be shown in ITR 2 return, as there is no column to report interest on Self Assessment Tax?

- Kishore Kumar Jaswani, New Delhi

The tax payments are to be made on a P.A.Y.E. (Pay As You Earn) basis. There are two methods of pre-payment of taxes. One is Tax Deduction at Source (TDS), where the party making certain payments such as salary, interest, professional fees, rent, etc. has to deduct tax at the prescribed rates on the amount paid or credited to any person. The amount so deducted has to be paid to the government treasury on behalf of the payee. The payee will get the credit for the tax so deducted against his/her liability to pay tax on his/her total income.

The other method is payment of Advance Tax. Where the estimated tax liability of a person is more than Rs 10000 per year, the tax payer needs to pay the tax at prescribed intervals as Advance Tax. The estimated tax liability means the tax liability on the estimated total income as reduced by the expected TDS. In the case of companies, there are four instalments, while non-corporate assessees such as individuals, firms etc., have to pay in three instalments on or before March 31 of the financial year. In case such Advance Tax is not paid or short paid, the assessee has to pay interest u/s 234C at the rate of one per cent per month or part thereof.

In your case, the net tax liability may have been around Rs 29260 per cent [being 30.9 per cent of the interest of Rs 140000 earned as reduced by TDS at the rate of 10 per cent thereon of Rs 14000], which is more than Rs 10000. Hence, you were required to pay Advance Tax in three instalments, as follows:

• First instalment being 30 per cent of the estimated tax liability on or before September 15, 2012;
• Second instalment being 60 per cent of the estimated tax liability as reduced by the amount of advance tax paid as first instalment, on or before December 15, 2012; and
• Third instalment being the total estimated tax liability as reduced by the amount of advance tax paid as first and second instalments, on or before March 15, 2013.

However, any payment of tax on or before March 31, 2013 will be construed as Advance Tax.

Since you have not paid Advance Tax at the prescribed intervals, you shall be liable to pay interest on such non-payment or short payment of about Rs 1083 u/s 234C of the Income Tax Act, 1961. No interest is payable u/s 234C of the said Act, for the period commencing on or after April 1.

Further, u/s 234B of the said Act, you have to pay interest for short payment of tax for the period commencing on April 1, at the rate of one per cent per month or part thereof till the date of payment. Thus, you have to pay interest of about Rs 1170 u/s 234B of the said Act for the period of four months from April 2013 to July 2013, as you have paid the short tax in July 2013 as Self Assessment Tax.

The above interest has to be shown in Form ITR 2 as Item No. 6 (b) and (c) on page 2.