CBDT Alerts Taxpayers on Advance Tax Mismatch

The Central Board of Direct Taxes (CBDT) has started an e-campaign to notify taxpayers whose taxes paid during the current fiscal year do not match their financial transactions. The campaign aims to increase transparency and promote voluntary tax compliance.

What is advance tax mismatch?

Advance tax is a system of paying taxes in instalments during the financial year, instead of paying the entire tax liability at the end of the year. Advance tax is applicable to all taxpayers, except those who opt for presumptive taxation scheme.

Taxpayers are required to estimate their income and tax liability for the year and pay advance tax in four instalments: 15% by June 15, 45% by September 15, 75% by December 15 and 100% by March 15.

However, sometimes there may be a mismatch between the advance tax paid by the taxpayers and the actual tax liability based on their income and financial transactions. This may happen due to various reasons, such as:

  • Underestimation or overestimation of income
  • Change in income sources or deductions
  • Non-disclosure or misreporting of income or transactions
  • Errors or omissions in filing returns or paying taxes

How does CBDT identify advance tax mismatch?

The income tax department receives information on specified financial transactions of taxpayers from various sources, such as banks, mutual funds, stock exchanges, registrars, etc. These transactions include:

  • Cash deposits or withdrawals exceeding Rs 10 lakh in a year
  • Credit card payments exceeding Rs 10 lakh in a year
  • Purchase or sale of immovable property exceeding Rs 30 lakh
  • Investment or expenditure exceeding Rs 2 lakh in a year

To increase transparency and promote voluntary tax compliance, this information is reflected in the Annual Information Statement (AIS) module and is available to taxpayers for viewing. The value of ‘significant transactions’ in the AIS has been used for carrying out this analysis.

On the basis of analysis of the taxes paid so far during the current financial year, the department has identified such persons/entities where payment of taxes for FY 2023-24 (AY 2024-25) is not commensurate with the financial transactions made by them during the said period.

What is CBDT’s e-campaign on advance tax mismatch?

The department is undertaking an e-campaign, which aims to inform such persons/entities of significant financial transactions, through email (marked as Advance Tax e-Campaign-Significant Transactions for AY 2024-25) and SMS, urging them to compute their advance tax liability correctly and deposit the due advance tax on or before March 15 .

The e-campaign also provides an opportunity for taxpayers to review their income and financial transactions and rectify any errors or omissions in their returns or taxes. The department has also provided an online facility for taxpayers to submit their response on the compliance portal.

To view the details of significant transactions, the taxpayers can log in to their e-filing account and go to the compliance portal. On this portal, the e-campaign tab can be accessed to view significant transactions. Taxpayers who are not registered on the e-filing website have to first register themselves.

What are the consequences of advance tax mismatch?

If taxpayers do not pay advance tax correctly by March 15, they may face interest and penalty charges under sections 234B and 234C of the Income Tax Act. The interest rate is 1% per month or part thereof for both underpayment and deferment of advance tax.

Moreover, if taxpayers do not disclose or misreport their income or transactions, they may also face scrutiny assessment, penalty and prosecution under sections 271AAB, 271AAC and 276CC of the Income Tax Act. The penalty can range from 10% to 200% of the undisclosed income and the prosecution can lead to imprisonment up to seven years.

Therefore, it is advisable for taxpayers to check their AIS and pay their advance tax correctly by March 15 to avoid any interest, penalty or prosecution.

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