Home / Opinion / Online-views /  Why paying advance tax on last day could be a problem

The first instalment of advance tax for the current year is due by 15 September 2012. If your tax liability, net of tax deductible at source (TDS), is likely to exceed 10,000, you need to pay advance tax. However, from the current year, if you are a senior citizen, you are exempted from payment of advance tax, provided you do not have any business or professional income. If you are liable to pay advance tax by 15 September, but pay it even a day late, you would end up paying interest on the entire instalment of advance tax for a period of three months till the next due date, that is 15 December.

Many people, however, tend to pay the advance tax on the last day—15 September. Very often, such payment is made by a cheque drawn on a bank other than the bank receiving the advance tax payment. In such cases, the payment of advance tax is tendered on 15 September, but realised after 15 September. In such cases, earlier the Central Board of Direct Taxes (CBDT) had clarified that the date of tender was to be taken as the date of payment, in accordance with the Treasury Rules, and accordingly no interest was chargeable for late payment in such cases. That is why the receiving bank would normally enter both the date of tender as well as the date of realisation in the stamped copy of the challan acknowledged by the bank.

The Central Government Treasury Rules were replaced by the Central Government Account (Receipts and Payments) Rules, 1983, which provide that when the payment is made by cheque or draft, the payment shall be deemed to have been made on the date on which it is cleared and entered in the receipt scroll. Since then, the tax authorities have been trying to levy interest in such cases where the cheques have been realised after the due date of payment. Various benches of the Income Tax Appellate Tribunal have taken the view that even after the new rules, the date of tender would still be the date of payment. According to these decisions, there is a conflict between the Negotiable Instruments Act, which provides that the date of payment relates back to the date of presentation of the cheque provided the cheque is honoured on the date of presentation, and these rules. A conflict between a law and rules would have to be resolved in favour of the law and, therefore, the provisions of the Negotiable Instruments Act would prevail.

So it is still possible in law to take the view that no interest is payable in such a situation. However, the computerized processing of income-tax returns by the Centralised Processing Centre (CPC) has created a problem in this regard. While processing tax returns, CPC picks up the date of payment of taxes from the Tax Information Network (TIN) server. In many cases, TIN records the date of clearance of the cheque as the date of payment and not the date of tender. Accordingly, in such cases, while processing the return of income, CPC automatically charges interest under section 234C and raises a demand.

This capturing of date of realization is probably due to an error by the receiving bank in entering tax payment data in the Online Tax Accounting System (OLTAS) system. According to Reserve Bank of India’s Master Circular on Collection of Direct Taxes—OLTAS, banks are supposed to record the date of presentation (tender) on the challan, though they are supposed to return the challan counterfoil to the taxpayer only on realization of the cheque.

What is your remedy against such demand? If you file a rectification application, CPC would not rectify the intimation as its records show the date of realisation as the date of payment. There is no facility for submitting a soft copy of the tax payment challan as evidence that the challan was tendered on an earlier date. If you file a rectification application with your assessing officer, though he has concurrent jurisdiction since the intimation was processed by CPC, he would not be able to process the rectification application. Further, it is likely that even if he considers your rectification application, he would reject it on the ground that the levy of interest is not an apparent mistake but a debatable issue.

Your only choice, therefore, is to file an appeal against the intimation before the jurisdictional Commissioner (Appeals). Obviously, such a line of action would be preferred by a taxpayer only where the interest levied is substantial enough to justify the additional cost of litigation. The other choice is to get the bank to correct the data entered, an almost impossible task.

In a large number of cases, therefore, the interest wrongly levied ends up being paid by the taxpayer. It is unfortunate that in the whole process of computerization of the tax systems, taxpayers are being forced to pay additional amounts of interest, which are rightfully not due, without any adequate cost effective remedy. The tax authorities need to amend the process of capturing the date of payment for tax payments to capture the date of tender. They also need to rethink the process of CPC rectification to work out how taxpayers can get such legitimate grievances addressed speedily, effectively and without incurring unnecessary costs.

Gautam Nayak is a chartered accountant.

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