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Say I owe total tax of Rs.1 lakh for the assessment year 2011-12. Of this say I have already paid 90k via TDS and advance tax. If I pay the remaining 10k in July 2011 just before filing returns, will it attract any interest? Isn't there a rule somewhere stating you are ok if you have already paid 90% of total due before the end of the financial year? Yet many people received interest recovery notices from IT dept year before last - some say this was a software error?

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If you owe a tax of more than or equal to 10K, then you need pay advance tax to avoid interest & penalty.

From the Income Tax India website http://www.incometaxindia.gov.in/Archive/Taxation_Of_Salaried_Employees.pdf

Liability for payment of advance tax arises where the amount of tax payable by the assessee for the year is Rs.10,000/- or more. The due dates for various instalments of advance tax are given below;
- On or before 15th September Amount not less than 30% of the previous year of such advance tax payable.
- On or before 15th December Amount not less than 60% of the previous year of such advance tax payable.
- On or before 15th March of Entire balance amount of the previous year such advance tax payable
So if you have income other than Salary, say gains from stocks, or interest that result in more than 10K as profits, you should be paying advance tax.

Of late the Government is capturing the tax data electronically and hence its easier to compute and generate such requests. There was also an error in the year 2009 with some processing where individuals who had only salary income received errenous notice, however this is rectified.

Edit: Incase you fail to make payment as per the prescribed schedule, for any delay in payment there is a penalty, ie if you do not make the 30% by 15th Sept and make it on 15 December, you will be charged an interest. If you do not make the payment by 30th March, you would be charged a penalty.

As in your example exactly 10% tax is outstanding as of 31st March, you are liable to pay a penalty. Even if you had paid a rupee more, then you would not have had to pay the penalty.

  • Thanks for your response. However, my question was not about advance tax per se, rather on interest on the shortfall in payment of advance tax. Page 8 of your helpful doc says that u/s 234B, interest is only payable if the shortfall is more than 10%. So in the example in question, no interest is payable on the shortfall of 10k. Correct? – ottodidakt Jul 12 '11 at 14:51
  • @bagheera: In your example the shortfall is exactly 10% and hence the penalty and interest. – Dheer Jul 12 '11 at 15:11

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