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Neeraj
Neeraj
Ramalingam

Ramalingam Kalirajan4803 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 29, 2024

Asked on - Nov 16, 2023Hindi

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Dear Tanna Ji, Sir , i am Neeraj Gupta. My query is related to Advance Tax. I am salaried Person and have no business, I filed my ITR on my own. Apart from from Salary, income from other sources are (1) I get Interest on saving bank Account, (2)There are Kishan Vikas Patra which was purchased by my younger Brother in 2018 But he expired in 2020. I am the the nominee in these Vikas Patra. Interest is componded annualy on KVP. After my Brother expired, I report accrual interest in my ITR. (3) I do have mutual funds on which I do book Profit whenever I feel. Now , I want to Know what are my obligations for Advance Tax ? I can not estimate the time and the income from Mutual Funds for calcualtion of advance tax. Interest on KVP is compounded annualy. If I pay taxes as advance tax before March 15,2023, Income tax portal calculate the interest under sec. 234, I received a demand notice which is calculated under section 234( C) on August 27,2023 for AY 2023-24. I learnt that If I deposit Tax as a advance Tax, Income tax software calculate interest. My understanding is that how can I pay Advance tax on the profit booked on mutual funds where I do not know the time and amount ? How can I pay advance tax on saving bank account where I do not know the amount of total interest ? Thirdly when interest on KVP is compounded annualy why can not I pay the tax in March only. I contacted / written to Income tax deptt. for the demand note of AY 2023-24 but in vain. No concrete reply these guy are able to give. If I pay tax during June July then Interest under 234 ( A,B,C) is applied. I am waiting for your reply. I am in 30% bracket as per OLD Regime.
Ans: Hi Neeraj,

I understand your confusion about advance tax and how it applies to your income sources. Let's break it down for each source and see how you can navigate it effectively.

Interest on Savings Account:

You're right; predicting the exact interest earned on your savings account can be tricky.
But here's a good strategy: Estimate the total interest you earned in the previous year and pay advance tax based on that.
This might lead to a slight mismatch, but it's better than facing a demand notice later.
Kisan Vikas Patra (KVP):

The compounded interest on KVP does add a layer of complexity.
However, you can still estimate the annual interest based on the KVP maturity value and the interest rate.
Pay advance tax considering this estimated interest. Remember, it's better to overestimate than underestimate to avoid interest charges under Section 234C.
Mutual Funds:

This is where it gets a bit trickier. Since you book profits at unpredictable times, estimating advance tax solely on mutual funds can be challenging.
Two options can help:
Consider Past Performance: Look at your past year's mutual fund gains and pay a conservative advance tax based on that.
Staggered Payments: Pay advance tax in installments throughout the year. This way, even if you book a large profit later, you've already paid some tax towards it, reducing your final tax liability.
Additional Tips:

A Certified Financial Planner (CFP) can help you with more personalized tax planning strategies. They can analyze your income sources, investment plans, and tax bracket to suggest an optimal advance tax payment plan.
The Income Tax Department website has an advance tax calculator that can be a helpful tool for estimation.
About the Demand Notice:

It's understandable that you're frustrated with the lack of clarity from the Income Tax Department.
You can try contacting their grievance cell or visiting their office for a more detailed explanation of the demand notice.

If you receive a demand notice for advance tax, it's essential to respond promptly and seek clarification from the Income Tax Department if needed. Explaining your situation and providing supporting documents can help resolve any discrepancies.

Remember:

Paying advance tax helps you avoid interest charges and penalties under Section 234A and 234C.
Even if your estimates aren't perfect, it's better to pay some advance tax than none at all.
Moving Forward:

By understanding how advance tax applies to your income sources and using the strategies mentioned above, you can ensure a smoother tax filing experience in the future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
(more)
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