How is advance tax penalty calculated?

If you fail to pay advance tax on time you are liable to pay a penalty with interest. I am sure you must have figured it out by now. But you want to know how is advance tax penalty calculated. Well, fret not I am here. I have been in the same situation as yours and my CA explained this concept to me quite clearly. Let me spill some knowledge for you.

Before going into calculations, I would like to point out that the interest is charged on the amount due to be paid as advance tax. Now let me give you my own example and share advance tax late payment penalty calculation.

My total tax outstanding amounted to Rs 3,00,000 (including net advance tax paid and TDS). I filed my tax return on December 15 instead of July 31 of the assessment year. Since I had missed the actual date to file a return, I was late by 5 months.

The penalty thus calculated was as follows:

Advance tax penalty = 300,000 x 1% x 5 = Rs. 15,000

I had to pay Rs 15,000 above the tax amount. 

Let’s assume my TDS amounted to Rs 2,47,450 and was deducted from the income. On March 25, I paid Rs 30,000, while the balance amount of Rs 22,550 was paid on July 20. The penalty in this case would have been calculated as under:

Before calculating interest penalty, it is necessary to check if the taxpayer is liable to pay interest under Section 234B.

Assessed tax = Total Tax - TDS

= Rs 3,00,000 - Rs 2,47,450

= Rs. 52,550

90% of Rs 52,550 i.e. Rs 47295 should have been paid as tax, as on March 31. I, however, paid only Rs 30,000. Hence I had to pay an interest penalty on the assessed tax.

Rs 47295 x 1% x 4 months (calculated till July) = Rs 1892

Hence penalty on advance tax would be Rs 1892, as penalty on the interest of the assessed tax, under Section 234B.

I hope now you understand advance tax penalty calculations.