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CMA Intermediate · Direct and Indirect Taxation · Advance Tax

Tax on the total income declared in the return of Kavita Textiles Pvt Ltd is Rs 3,50,000, including cess. Tax of Rs 50,000 was deducted at source on income included in that total income, and no other reduction applies. The company paid Rs 40,000 of advance tax by 15 June and a further Rs 60,000 by 15 September (cumulative Rs 1,00,000). Applying the interest rule for deferment of advance tax, what interest is payable for the shortfall in the 15 September instalment?

Interest is Rs 1,050. Tax due on the returned income is 3,50,000 less 50,000 TDS, or Rs 3,00,000. The required 45% by 15 September is Rs 1,35,000 and the payment of Rs 1,00,000 falls short of the 36% safe level. The shortfall of Rs 35,000 at 3% gives Rs 1,050.

  1. ARs 1,050Correct
  2. BNil
  3. CRs 1,725
  4. DRs 4,050

Explanation

Tax due on returned income = 3,50,000 - 50,000 = 3,00,000. By 15 September 45% is 1,35,000, and 36% is 1,08,000. The cumulative payment of Rs 1,00,000 is below 36%, so no relief applies. The shortfall is 1,35,000 - 1,00,000 = 35,000, and interest at 3% is Rs 1,050. Using the tax before TDS gives Rs 1,725, which is wrong.

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