Did you know that the government gives you up to 4 months, between 1st April to 31st July of a fiscal year, to pay your previous year’s taxes? The logic is that since you have had almost the entire year to minimize your tax liability through the best tax saving options available and it should not take more than a few minutes to file for taxes, four months is a reasonable time.
So what happens if you forget to pay your taxes within the stipulated timeframe? You end up attracting penalties. What is more? The income tax officer can also penalize you for the term of 3 months to 2 years and inflict a fine if you do not file your taxes on time, as per the applicable income tax slab rates. This period can extend up to 7 years if your tax liability is more than 25 lakhs!
This is where advance tax comes in. As the name suggests, advance tax is payable ahead of time to provide the government with a constant flow of income that they can use to manage expenses. Additionally, this tax also is payable on additional income from interests on fixed deposits, shares, capital gains on house property, and winnings from the lottery. Businesses and self-employed professionals are also required to pay advance tax, as per the Income Tax Act of India.
This is important for you to know if you are aiming for maximum tax saving via some of the best tax saving options in India. You must also consider avoiding penalties that are incurred in case of missed tax payments or non-payment of advanced tax.
Interest Imposed Under Section 234A, 234B, and 234C
If you forget to make your tax payments or delay it for some reason, say, you are still figuring out the best tax saving plan for yourself, then you are liable to pay penalties in the form of interest charged under section 234B. Similar penalties are imposed under section 234A and 234C as well.
Let us understand each individually.
Interest imposed under Section 234A
If you are usually late in filing their income tax, then you run a high risk of attracting this penalty.
The due date for filing returns is 31st July of the assessment year. But if you fail to make the payments by the cut-off date, then you are liable to pay an interest of 1% on the outstanding taxable amount which is paid over and above the payable tax. This interest is calculated from the due date of filing the return until the actual date when you filed your taxes. People looking for maximum tax savings should keep these dates in mind to avoid being penalized.
Interest imposed under Section 234B
As per this section, the interest of 1% is payable in case of incomplete tax payments. This interest is also applicable if you delay the payment of advance tax within the stipulated time frame.
It is important to note that the interest will also be charged if you made an advance tax payment of an amount that is less than 90% of the assessed tax.
Interest imposed under Section 234C
Under section 234C, the penalty interest is applicable when there is a delay in payment of advanced tax instalment. Along with having the best tax saving plan by your side, you must also avoid penalties on late tax payments. At the same time, you can also look for investments related to financial instruments where the taxpayer is exempted under income tax section 10 and 80.
For example, with added short-term benefits such as free withdrawals after an initial lock-in period of 5 years and flexibility of maturity benefits, Unit Linked Insurance Plan is one of the best tax saving options available. It also gives you tax-free benefits on premiums under income tax section 10. Similarly, you can also claim a rebate of up to Rs. 1,50,000 on your life insurance policies as per section 80C and provide financial security to your loved ones against unforeseen circumstances such as sudden demise, and critical illness.
Benefits of Advanced Tax
Remembering tax payments can be a hassle, especially when you have tons of other things to do. However, with advance tax payments, you can not only gain maximum tax saving but also avoid being penalized.
Advance tax is applicable when your tax liability exceeds Rs. 10,000 in a given financial year. But if you fail to pay the advance tax or pay less than the threshold by the first deadline, then you are liable to pay interest of 1%, which is entirely avoidable!
Are you worried that you will end up paying more than your due in advanced taxes? Don’t, because even if you pay higher than your liability, you benefit from it.
The Income Tax department will not only refund the excess amount but also apply interest of 6% per annum! This additional benefit is applicable if the amount is more than 10% of your tax liability.
If you want to avoid the penalties under 234A, B, and C, you must ensure to make tax payments on time and in full. Additionally, you can also aim for maximum tax saving by investing in multiple financial products offered by reputed insurers like Max Life Insurance. These products are specifically designed to help with your long-term/short-term financial goals as well as save you money in taxes as per income tax section 10 and 80.