Tag: advance tax

All you wanted to know about advance tax

Personal Finance

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A coffee time conversation between two colleagues leads to an interesting explainer on the rules of taxation.

Vina: Last week, I saw you juggling with tax calculations. What have you been up to?

Tina: Yeah! I was in a rush to make the tax payment for FY21, within the deadline.

Vina: But why? Didn’t you notice the due dates for filing returns for FY21 have been pushed to September 30, 2021 from July 31st?

Tina: I am well aware of that, Vina. But I guess you missed the crux here.

Vina: Oh! I see the grin and know what it means. Please don’t get started on how one should start filing returns early to avoid last-minute rush.

Tina: While that still stands true, I was trying to bring to your notice the fact that the due dates for advance tax installments have not been changed.

Vina: What’s advance tax now? Care to explain?

Tina: If your tax liability in any financial year works out to ₹10,000 or more, then you need to pay it in advance — in four installments.

This, however, does not apply to taxpayers aged 60 and above who do not earn any income under the head ‘profits and gains of business or profession’.

Vina: Oh lord. Then this definitely applies to me too.

Tina: For FY21, such taxpayers should have paid at least 15 per cent of their tax liability on or before June 15, 2020.

And at least 45 and 75 per cent, should have been paid by September 15 and December 15 2020, respectively. The last day for paying the entire tax amount is March 15, 2021.

Vina: Then, I have clearly passed the deadline for all my tax installments. What happens now?

Tina: You will now be required to pay interest on any shortfall under section 234 B and 234C of the Income Tax Act, at the rate of one per cent per month (under each section), for every month of delay. So if you file your returns late due to extension of the deadline and decide to pay all the taxes due then only, the charges under 234 B and C will go up.

Vina: I better act fast then.

Tina: Rightly said. But do remember that taxes deducted or collected at the source of income (TDS/TCS) are also forms of paying taxes in advance.

Vina: That should save me some skin. But this seems very tricky to me.

How am I expected to assess my yearly income, with such accuracy so much in advance?

Tina: Valid point, Vina. The taxman does allow room for such miscalculations.

For the first two installments (i.e. June and September 15), no interest shall have to be paid, if at least 12 per cent (instead of the required 15 per cent) and 36 per cent (instead of 45 per cent), of the advance tax is paid by the respective due dates.

Vina: Ok. Though I have again missed the June 15 deadline for this year, I will remember to be prompt with the rest of the instalments at least.

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Tax query: What’s the tax liability for buying resale property using proceeds of equity investment?

Personal Finance

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I am planning to buy a resale property using the proceeds from sale of my shares held in ICICI direct. What will be my tax liability, considering the fact the shares held in the account are one year old to seven-year old? Also, advise me on the precautions needed while buying a resale house.

Nilesh

Assuming that the shares held in ICICI direct are listed on Indian stock exchanges and are held for a period of more than 12 months, the gain/loss arising on sale of these shares shall be treated as long-term capital gain /long-term capital loss (LTCG/LTCL). As per Section 112A of the Act, LTCG in excess of ₹1,00,000 earned from sale of listed equity shares on which securities transaction tax has been paid shall be subject to income tax at the rate of 10 per cent (excluding surcharge and education cess).

Where the shares are purchased before January 31, 2018, the cost of acquisition shall be the higher of the following:

· actual cost of acquisition; or

· lower of (i) fair market value (FMV) of such share on January 31, 2018 (highest quoted price) or (ii) full value of consideration as a result of transfer.

You can explore deduction under Section 54F of the Act in case the net sale consideration arising from the sale of shares is invested in purchase of a residential house property within one year before the transfer date or within two years after the transfer date subject to specified conditions.

In regards to the purchase of immovable property, as per Section 194-IA of the Act, you will be required to deduct taxes at source (TDS) at the time of making payment of the sale consideration to the seller @ 1 per cent (assuming seller is a resident of India), where the sale consideration of the said property is equal to or exceeds ₹50 lakh. In such case, you will also be required to file a TDS return in Form 26QB and issue a Form 16B to the seller of the property.

A senior citizen engaged in businessis expected to make payment of advance tax based on his earnings. I would like to know the following: (i) if a senior citizen makes investment on equity, does he need to pay advance tax based on the quarterly earnings? (ii) if a senior citizen does trading on equity (buying and selling shares) will the same (payment of advance tax) be applicable? Please clarify while keeping in mind long- and short-term gains.

RM Ramanathan

As per Section 208 of the Income Tax Act, 1961 advance tax is applicable if the tax liability (net of taxes deducted or collected at source) on taxable income is ₹10,000 or more. As per Section 207 of the Act, liability to pay advance tax doesn’t apply to a resident senior citizen (who is aged 60 years or more), not having the income from business or profession.

Scenario I

The senior citizen doesn’t have income from business/profession:

Earnings on investment in equity could be in the form of dividend & capital gains (long term or short term, depending upon the period of holding) which are chargeable to tax under the head ‘Income from other sources & Income from Capital gains, respectively.

In view of the provision discussed above, payment of advance tax provision doesn’t apply in this scenario.

Scenario II

Senior citizen derives income from business/profession (trading of shares):

Since the senior citizen is trading in equity (which may include shares held as stock-in trade, intraday transactions etc.), it would tantamount to carrying on a business.

Accordingly, the advance tax provision of section 208 shall apply and he is required to pay advance tax if the net tax liability exceeds ₹10,000 in a FY.

The writer is Partner, Deloitte India. Send your queries to taxtalk@thehindu.co.in

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