ADVANCE PAYMENT OF TAX

Sections from this ChapterSection Particulars

207 Liability for payment of Advance Tax208 Conditions for Liability for payment of Advance Tax209 Computation of Advance Tax 210 Computation of Advance Tax by the Assessee himself

Or by the Assessing Officer211 Due Dates of Installments for payment of Advance Tax218 Assessee deemed to be in default219 Credit for Advance Tax

234B 234C234C 115JB

Rules119A

It is payable in respect of all the taxable income whether recurring or nonrecurring.If the amount of estimated tax payable is Rs.10,000 or more, it is obligatory to pay advance tax. It is based on PAYE i.e. Pay As You Earn.

If the amount of estimated tax payable is less than Rs.10,000, Advance Tax is not payable. Section 208

In case of Resident Senior Citizen, Advance Tax is not payable. Section 207(2)

Assessees covered by Presumptive Tax like Section 44AD, 44AE are not required to pay tax in advance

However, Assessees liable to pay MAT are required to pay Tax in advance even if they estimate loss. Section 115JB

Sec. 208Calculation of Advance TaxIf calculated by the assesseeUnder Sections 210(1), 210(2) or Sec.210 (6)1. Assessee should estimate his income for the current year.2. Calculate the income tax applying current year rates. The assessee must revise his income if necessary at the time of payment

of each installment and

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adjust the amount of each remaining installment accordingly.

Calculation of Advance TaxIf calculated by the Assessing OfficerUnder Sections 210(3)1. Assessing Officer should estimate assessee's income for the Current year

(i) Taking income as assessed by him as per the latest regular assessmentorder

(ii) Income as per the latest return filed by the assessee. Whichever is higher. 2. Calculate the income tax applying current year rates. If the return is filed subsequently or the regular assessment is done

subsequently, the assessing officer can amend his order.

Calculation of Advance Tax

1. Estimate the Current Year’s Income. This will include incomes under all the Heads. Even exempted income like Agricultural Income is also included for rate purposes. Income of other persons clubbed in the hands of the Assessee should also be included.In short, it is calculated in the same way as the normal income and normal tax done at the end of the previous year except that the income is estimated.

2. Compute Tax on such estimated income.3. Reduce the tax by MAT Credits (only in case of Companies).4. Reduce the tax by AMT Credit.5. Add Surcharge (only in case of Companies).6. Add Education Cess + SHEC. (in case of all the Assessees) 7. Deduct if any Relief is available under Sections 89,90,90A and 91. 8. Estimate Tax Deducted at Source and Tax Collected at Source. This

should be reduced from the estimated tax payable. 9. If the balance amount of tax is less than Rs.10,000, no advance tax

payable. If the balance amount of tax is Rs.10,000 or more, advance tax is payable.

10. Assessee should pay Advance Tax in installments on or before due date as specified in Section 211.

11. Care should be taken to see that each installment represents specified percentage of the entire amount to be paid by way of Advance Tax. The percentages are specified in Section 211.

12. Before every due date of payment of Installment of Advance Tax, the Assessee can revise his estimate and adjust the amount of next installment/s accordingly.

13. If nonrecurring income like Capital Gain arises during any part of the year, tax on such transaction should also be paid in the remaining installments. If such transaction occurs after all the installments have

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been paid i.e. after 15th March, tax on such transaction can be paid on or before 31st March.

14. If any installment falls short of the amount required to be paid, interest will be chargeable for short payment of Advance Tax under Section 234C.

15. However, interest will not be chargeable if the shortfall occurs because of the transactions mentioned in 13.

16. The Actual Income and hence actual Income Tax payable will be known only at the end of the previous year. There can be difference between (Estimated Income), and Estimated Tax and (Actual Income), and Actual Tax. But the difference between the Actual Tax and Estimated Tax should not exceed 10% of assessed tax. It means if the assessed tax is Rs.50,000, Assessee should have paid advance tax of not less than Rs.45,000. In such case, no interest will be chargeable for the shortfall.

17. Excess amount of Advance Tax shall be refunded with interest when Assessment Order is passed.

Amount of Advance TaxIn case of Companies, advance tax is payable in 4 installments.In all other cases, it is payable in 3 installments.

Companies

Due dateOn or before 15th June

Not less than 15% of the advance tax

On or before 15th September

Not less than 45% of the advance taxas reduced by the amount paid on first installment

On or before 15th December

Not less than 75% of the advance taxas reduced by the amount paid on first installmentand Second Installment

On or before 15th March

Whole of the amount of the advance taxas reduced by the amount paid on first installmentand Second Installment and Third Installment

Others Due dateOn or before 15th September

Not less than 30% of the advance tax

On or before 15th December

Not less than 60% of the advance taxas reduced by the amount paid on first installment

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On or before 15th March

Whole of the amount of the advance taxas reduced by the amount paid on first installmentand Second Installment

In short,

Due date Corporate assessees Non-corporate assesseesOn or before 15th June 15% -On or before 15th September

45% 30%

On or before 15th December

75% 60%

On or before 15th March 100% 100%

The above percentages refer to amount of tax payable in advance calculated as under: Estimated current year’s income Estimated tax liability thereon Less: Estimated tax deducted at source for the year Estimated tax collected at source for the year

Less: amount of advance tax already paid on earlier installments

Any amount paid by way of advance tax on or before 31st March of the relevant year is also treated as Tax paid in Advance.If the Assessing Officer has issued notice under section 210(3) or 210(4), the amount of tax should be paid on or before due date. WHO SHOULD PAY TAX IN ADVANCEAny person who is liable to pay tax of Rs. 10,000 or more. i.e. estimated tax liability for the current year less tax deducted or collected at source should exceed Rs.10,000.

Example 1. C is employed with B Limited for a salary of Rs.50,000 per month. Total amount of deduction under Section 80C is Rs.1,00,000. His tax liability is calculated at Rs.30,000. His employer deducts tax of Rs.30,000 at source out of his salary. Though B is liable to pay tax of more than Rs.10,000, he is not required to pay any advance tax. Because balance tax payable is zero. You may say that TDS is monthly payment of tax in advance.

2. D’s annual income is

Salary Rs.7,00,000 Tax liability Rs. 50,000 Other incomes Rs. 25,000 Tax liability Rs. 5,000

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No liability to pay tax if the employer deducts tax of Rs.50,000 at source from his salary. D can pay tax of Rs.%,000 on other income at the time of filing the return as self-assessment tax.But if his other incomes are Rs.90,000 and tax liability is thereon is say, Rs.18,000 then D is liable to pay advance tax of Rs.18,000.

3. A public limited company estimated its income for the year at Rs.10,00,00,000. The tax liability is worked out at Rs.3,00,00,000. Tax at source estimated for the year is Rs.2,00,00,000. The company will have to pay advance tax of Rs.1,00,00,000.

4. Section 115JB HOW TO CALCULATE ADVANCE TAX?Person liable to pay advance tax should estimate his tax liability on the basis of the current years-estimated income.While computing current year’s income he has to take all the nonrecurring income also into account. The tax liability on the estimated income is worked out at the rates in force in the relevant year. Deduction, Rebate etc. has to be taken into account. The tax liability should be further reduced by the amount of TDS and TCS.Balance amount is the total amount payable in advance. The amount of tax payable in advance is to be paid in installments. Each installment is a fixed percentage of total amount payable in advance. Each installment has to be paid on or before due date. Delay in payment even by one day attracts interest charges. (See section 234C).As the income for the year cannot be estimated accurately, at the time of making payment of subsequent installment, income has to be reworked, tax liability has to be re-computed and accordingly the amount of installment can be enhanced or reduced.

Example: Company has estimated its income for the year 2014 -15 at Rs.20,00,000 and tax liability @ 30% at Rs.6,00,000. Accordingly the first installment payable on 15.06. 2014 works out to be Rs.90,000. However at the time of paying second installment, Company revised it’s earlier estimate of income and estimated that its income for the next year would be Rs.18,00,000. The estimated tax liability is Rs.5,40,000. The amount payable on second installment is worked out as under:

Total estimated tax liability for the year Rs.5,40,000 Amount payable on second installment 45% of Rs.5,40,000 2,43,000 Amount already paid on first installment 90,000 Amount payable on second installment Rs. 1,53,000

Company will have to pay advance tax of Rs.1,53,000 on or before 15th September, 2014.

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Further assume that Company after preparing half yearly financial statements, revised its estimated total income for the year to Rs.25,00,000 before 15th December. Accordingly, the estimated tax liability works out to Rs. 7,50,000. Therefore the amount payable on third installment (due on or before 15th December, 2014 is worked our as under:

Rs.Total estimated tax liability for the year 7,50,000

Amount payable on third installment 75% of Rs.7,50,000 5,62,500 Amount already paid on first and second installments

2,43,000 Amount payable on second installment 3,19,500

Company will have to pay advance tax of Rs. 3,19,500 on or before 15th December 2014. Assessing Officer can estimate current year’s income on the

basis of Last return Or Last assessment made whichever is higher.Accordingly tax is calculated. If return is subsequently filed or regular assessment is subsequently done, he may compute the tax liability on the basis of such last return or assessment order and tax will be calculated accordingly.

Section 210(3)Assessing Officer On the basis of last regular assessment is of the opinion that the person is liable to pay advance tax may require that person to pay advance taxAssessing Officer should pass an order in writing and issue notice under section 156 specifying the amount of installments to be paid Such order should be passed before the month of February of the relevant year.

Section 210(4) If the assessee files return of income subsequently or if the Assessing Officer passes any regular Assessment order Assessing Officer may revise his above order.

If the person has not paid any advance tax he can pay on the receipt of the notice.If he has already paid advance tax but Assessing Officer may require him to pay more/higher amount he can pay the amount before last installment.

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If the person does not agree with the above order, he can send intimation to the Assessing Officer in the Form no.28A specifying the estimated income and amount of estimated tax and pay tax accordingly.If however, any person is served with an order under section 210(3) or section 210(4) or who has sent an intimation to Assessing Officer under section 210(5), estimates his current income exceeding income stated in the order or intimation, he can pay the whole or any part of the tax on or before due date of last installment. ADVANCE TAXUsually tax liability is paid only when the Income Tax Authorities determine (assess) income and tax thereon. This is done in the subsequent year/s of earning the income. In other words, for the income earned in the previous year, tax is paid in subsequent year/s.Advance tax means payment of the tax liability before it is actually determined or assessed. It is to be paid during the financial year (i.e. previous year) during which the income is earned.It is based on the principle of PAYE – Pay As You Earn.However one cannot exactly determine his tax liability unless the year is over. But the Income Tax Act requires the person to estimate his tax liability for the year and to pay tax accordingly.And such estimated tax liability should not be less than 90% of the actual tax liability as may be finally determined. i.e. he should not underestimate his tax liability by more than 10%. If he does so, he will have to pay interest under section 234B @ 2% p.m. (1.5% p.m.p.m. with effect from 01.06.1999, 1.25% p.m.p.m. with effect from ) on the entire amount of difference between actual tax liability and the amount of advance tax paid by him. Interest will be calculated from 1st April of the relevant Assessment year to the date of the assessment order [under section 143(1) or 143(3)].However the assessee can pay the amount of interest at the time of filing the return.Example: A has paid tax in advance of Rs.7, 000.

On assessment, his tax liability was assessed at Rs.10, 000.He has to pay interest under section 234B. @ 2% p.m. (now 1.5%) on Rs.3, 000If he files an appeal and as a result, his tax liability is reduced toRs.7,500 then he will not be liable to pay interest under section 234B [as the difference between the advance tax paid by him and actual tax liability is less than 10%.] Interest paid earlier before filing appeal will be refunded.

The advance tax is payable in installments (4 installments in case of the companies and 3 in case of other assessees). The amount of installment to be paid is certain percentages of the total amount to be paid in advance. The Act also requires that these installments to be paid be certain dates. The entire tax liability is to be paid by 31ST March [or by the end of the relevant previous year]. If any person fails to pay advance tax, he is liable to pay interest under section 234B @ 2% p.m. (1.5% p.m.p.m. with effect from

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01.06.1999) on the entire amount of tax liability as may be finally determined.

Interest will be calculated from 1st April of the relevant Assessment year to the date of passing assessment order.

Advance Tax in respect of Capital Gain or Casual and/or Non-recurring Incomes

There are some Incomes which cannot be estimated. Examples are Winning from Lotteries, Racehorses etc. Similarly income by way of Capital Gains is also not predictable. In such cases, if there is any such income arises at any time during the previous year, it has to be taken into account only for the remaining amount of advance tax. No interest will be chargeable in respect of shortfall in advance tax in earlier installments.

Example:B has estimated his total income for the previous year 2014 -15 as Rs.8,00,000. The estimated tax liability is calculated as Rs.2,00,000. He has to pay this tax liability in advance as under:1st Installment on or before 15th June 30%

Rs.60,0002nd Installment on or before 15th September 30% Rs.60,0003rd Final Installment on or before 15th December 40%

Rs.80,000Suppose after paying first installment of Rs.60,000, B won a prize at Race horse for Rs.50,000 on 1st August, 2011. Tax Liability thereon is Rs.15,000. B now has to pay advance tax as under:1st Installment on or before 15th June 30% (Paid)

Rs.60,0002nd Installment on or before 15th September 30%

Rs.69,0003rd Final Installment on or before 15th December 40%

Rs.86,000Rs.2,15,000

Calculation of 2nd Installment Total Tax liability after winning Horse Race 2,00,000 + 15,000 = 2,15,000 advance tax @ 60% of Rs.2,15,000

= 1,29,000 amount already paid on first installment Rs. = 60,000

Balance amount payable on 2nd Installment 69,000

Calculation of 3nd Installment Total Tax liability after winning Horse Race 2,00,000 + 15,000 = 2,15,000 advance tax @ 100% of Rs.2,15,000

= 2,15,000 amount already paid on earlier installment Rs. = 1,29,000

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Balance amount payable on 2nd Installment 86,000

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