Computation of Advance payment tax

Introduction

The Central Government of India has the power of levying tax on all incomes except agricultural income and the power is provided through Entry no. 82 of the Union List of Schedule VII of the Constitution of India.

The Income Tax Law comprises The Income Tax Act 1961, Income Tax Rules 1962, Notifications issued by Central Board of Direct Taxes (CBDT), Annual Finance Acts, also some precedents of courts.

The Indian Income Tax Department is governed by Central Board of Direct Taxation (CBDT) and is part of the Department of Revenue under the Ministry of Finance, Government of India. Income tax is one of the key sources of revenues that the government uses to fund its various activities and serve the public.

Advance tax is paying a part of your taxes before the end of the financial year. Advance tax is the income

tax payable by the Assessee if the tax liability is INR 10,000 or more in a financial year. It is the responsibility of the tax payer to estimate the income and then calculate the estimated tax to see

whether they need to pay advance tax. The income tax department does not have to demand that the individual pay the advance tax till the assessment is done but the onus is on the individual tax payer. This is mainly due to the situation that it is not possible for the tax authorities to estimate the income of a person till it is earned and this estimation is better known by the person earning the income.

Income tax is levy on the taxable income of the Assessee, any individual who is liable to the advance payment of tax, defined under Section 2(1) of Income Tax Act,1961.

Advance Payment of Tax makes a person liable to pay his/her taxes of the year before the end of the financial year or in that year only in which he/she received his/her income.

It is mentioned in the ^[2]Section 208 of Income Tax Act,1961, that every person who owe tax liability of more than or equal to Rs.10,000/- for the year liable to pay tax in the year of receiving of income itself.

All categories of taxpayers like freelancers, salaried employees, businessmen, who owe liability of tax payment of more than Rs.10,000.

Income chargeable to tax under payment of advance tax

Every income, including capital gains, casual income, etc., is liable for payment of advance tax. Advance tax is applicable to all those who have income in India, irrespective of their residential status. Tax on your salary will be deducted by your employer. If you have income from any other sources such as rental income, income from shares or bank interest, you will be responsible to pay the final schedule of advance tax. Failing to pay advance tax will attract interest which has to be paid while filing your tax returns.

Sections Chargeability

Sec 207: Advance tax is payable on the total income of an Assessee (including Casual incomes) which are chargeable to tax in the year in which an income is earned. As per this section, a resident senior citizen (i.e., an individual of the age of 60 years or above) not having any income from business or profession is not liable to pay advance tax.

Sec 208: Assessee is liable to pay advance tax if his tax liability is INR 10,000/- or more. It says “Advance tax shall be payable during a financial year in every case where the amount of such tax payable by the Assessee during that year, as computed in accordance with the provisions of this Chapter, is ten thousand rupees or more.”

Sec 209: From the assesses tax liability, TDS (Tax Deducted at Source) shall be reduced and the balance tax liability shallu be paid accordingly. According to amendment of this section, “Provided that for computing liability for advance tax, income-tax calculated under clause (a) or clause (b) or clause (c) shall not, in each case, be reduced by the aforesaid amount of income-tax which would be deductible or collectible at source during the said financial year under any provision of this Act from any income, if the person responsible for deducting tax has paid or credited such income without deduction of tax or it has been received or debited by the person responsible for collecting tax without collection of such tax.”

Sec 210: This section of the Income Tax Act specifies the following provisions related to advance tax:

Liability to Pay Advance Tax: As per this section, any person whose estimated tax liability for the financial year is Rs. 10,000 or more is liable to pay advance tax.
Due Dates for Payment of Advance Tax: Advance tax is to be paid in instalments during the financial year.

Exceptions of Section 208 of Income Tax Act,1961

The only exemption is given under ^[3]Section 207(2) of Income Tax Act,1961, which exempted those who, (a) does not have any income chargeable under the head “Profits and gains of business ins or profession”; and

(b) is of the age of sixty years or more at any time during the previous year.

One has to pay the amount of tax in four or three installments, according to his/her category, which usually reduces the burden of paying a large amount of tax in one instance and it also helps government for smooth running of its works, schemes as they need money throughout the year for keep going of its schemes, plans and with the payment of installments it can do its functions continuously or without facing any hardship. This system of advance payment of tax helps both the parties i.e. taxpayer and government, by reducing burden of taxpayers and providing continuous income to government.

Due dates of payment are fixed and the part of income tax that one has to pay till which date is fixed. If anyone failed in doing so, he will charge with interests accordingly.

Due date of advance payment tax

Advance tax is to be paid in different installments. The due dates for payment of different installments of advance tax are as follows:

Note 1: Any tax paid till 31st March will be treated as advance tax.

Note 2: If the last day for payment of any instalment of advance tax is a day on which the banks are closed, then the taxpayer should pay the advance tax on the immediately following working day [Circular No. 676, dated 14-1-1994].

Interest payable by Assessee on delayed payment of Advance Tax. Section 234B:

In the cases of delay in the payment of advance tax, interest at the rate of 1% per month or part of the month is chargeable. Interest on delayed payment of advance tax is chargeable whenanAssessee has either failed to pay advance tax or has paid the advance tax which is less than 90% of assessed tax.

Amount on which interest is payable are either the Assessed Tax or Assessed tax minus advance tax paid by the Assessee. (Assessed tax = Tax on Income u/s 143(1) or u/s 143(3) – TDS paid). The period for which interest is payable is from 1^st April of the assessment year to the date of determination of Income u/s 143(1) or where regular assessment is made to the date of regular assessment.

Interest for default in payment of installment(s) of advance tax [Section 234C]

Interest under section 234C in case of deferment of different installments of advance tax is levied in following cases

i) In case of taxpayers (other than those who opted for presumptive taxation scheme under Section 44AD or section 44ADA), interest shall be levied-

If advance tax paid on or before 15^th June is less than 15% of advance tax payable
If advance tax paid on or before 15^th September is less than 45% of advance tax payable • If advance tax paid on or before 15^th December is less than 75% of advance tax payable
If advance tax paid on or before 15^th March is less than 100% of advance tax payable. ii) In case of taxpayers who opted for presumptive taxation scheme of Section 44AD or section 44ADA interest shall be levied if advance tax paid on or before 15^th March is less than 100% of advance tax payable.

The rate of interest shall levy at 1% per month or part of a month (simple interest). Interest is levied for a period of 3 months, in case of short fall in payment of 1^st, 2^nd and 3^rd installment and for 1 month, in case of short fall in payment of last installment. Interest shall be is receivable by the Assessee where any refund arises due to any excess payment of tax, under section 244A.

Calculation of Interest Period:

Where the refund is due to excess payment of advance tax/TDS/TCS/advance fringe benefit tax, interest period is calculated from the 1^st day of A.Y. to the date of grant of refund (i.e. the date of signing of the refund order) only if return is filed on or before the die date.
Where the refund is due to excess payment of self assessment tax, interest period is calculated from the date of assessment order to the date of grant of refund (i.e. the date of signing of the refund order).

Mode of payment of advance tax

As per Rule 125 of the Income-tax Rules, 1962

A corporate taxpayer (i.e., a company) shall pay taxes through the electronic payment mode using the internet banking facility of the authorized banks and,
- taxpayers other than a company shall pay taxes through the electronic payment mode using the internet banking facility of the authorized banks, who are required to get their accounts audited.
- Any other taxpayer can pay tax either by electronic mode or by physical mode i.e. by depositing the challan at the receiving bank (as discussed above)

Payment of advance tax

Advance tax can be paid by the taxpayer either on his own account or in pursuance of an order of the assessing officer. The taxpayer who is liable to pay advance tax is required to estimate his current income and pay advance tax on his own account. In such a case, he is not required to submit any estimate or statement of income to the tax authorities. After making payment of first or second or third instalment of advance tax (as the case may be), if there is a change in the tax liability, then the taxpayer can revise the quantum of advance tax in the remaining instalment(s) and pay the tax as per revised estimates. Tax can be computed on the current income (estimated by the taxpayer) at the rates in force during the financial year. From the tax so computed, tax deducted or collected at source will be deducted and the balance tax payable will be used to compute the advance Tax liability. Also, relief of tax allowed under section 90 or section 90A or any deduction under section 91 or any tax credit allowed to be set off as per section 115JAA or section 115JD shall also be deducted while computing the advance tax liability.

Payment of advance tax in pursuance of an order of the Assessing Officer

If taxpayer fails to pay advance tax (or advance tax paid is lower than the required amount) and he has already been assessed by way of regular assessment in respect of the total income of any previous year, then the Assessing Officer may pass an order under section 210(3) requiring him to pay advance tax on his current year’s income (specifying the amount of instalments in which tax should be paid). Such an order may be passed during the financial year, but not later than the last day of February. On receipt of the notice from the Assessing Officer to pay advance tax, if the taxpayer’s estimate is lower than the estimate of the Assessing Officer, then the taxpayer can submit his own estimate of current income/advance tax and pay tax accordingly. In such a case, he has to send intimation in Form No. 28A to the Assessing Officer. Alternatively, if the advance tax on current income as per own estimate of the taxpayer is likely to be higher than the amount estimated by the Assessing Officer, the taxpayer shall pay such higher amount as advance tax in accordance with his own calculation. In such a case, no intimation to the Assessing Officer is required. The Assessing Officer can revise his order issued to the taxpayer to pay advance tax (as discussed above) under section 210(4). Such revision can be done, if subsequent to the passing of an order to pay advance tax but before 1^st March of the relevant financial year, a return of income in respect of any later year has been furnished by the taxpayer or any assessment for any later year has been completed at a higher figure.

Advance tax collection in India:

The average advance tax collection for the eighteen years duration of the study starting from the year 2000-01 and ending on 2017-18 was amounting to INR 2,13,641 crore. While the highest level of advance tax collection amounting to INR 5,30,285 crore was observed during the year 2017-18, the lowest level of advance tax collection amounting to INR 32,614 crore was observed during the year 2000-01.

Advance tax collection has shown a consistent growth in comparison with the previous years, except for the fact that, a decline in the amount of advance tax collection was observed three times only during the years 2005-06, 2008-09 and 2015-16.

Case laws related to payment of advance tax

Aop of Sanjaybhai R. Patel and 11 Ors. V. Assessing Officer (2004)

The Gujarat High Court held in this case that the Settlement Commission does not have the authority to lower or waive the interest that is due, under sections 234A, 234B, and 234C of the Income Tax Act.

Kwality Biscuits Ltd. V. Commissioner of Income Tax (2000)

In this case the Karnataka High court held that a corporation or a company who pays MAT cannot be fined under Section 234B and 234C because it is not possible for a corporation to compute its income under section 115JA until accounts are audited and balance sheets are generated and that can be done only at the end of the financial year.

Jindal Thermal Power Company Limited v. Deputy Commissioner of Income Tax (2006)

In another ruling, the Karnataka High Court set aside its previous ruling made in Kwality Biscuits and declared that 115JB is a self-contained code regulating the MAT obligation of firms. As a result, those companies are responsible for paying penalties under Sections 234B and 234C of the ITA which fall behind on the payment of advance tax. In this case the Karnataka High court rules against its own previous judgement and held that Section 115JB a self-contained code regulating the MAT obligation of firms and companies are liable for paying penalties under Sections 234B and 234C of the Income Tax Act who fall behind on the payment of advance tax.

Commissioner of Income-Tax v. Zuari Agro Chemicals Ltd. (2005)

This case was before the Bombay High Court to decide on a substantial question of law that whether, based on the facts and the circumstances of the case, the assessee had underestimated the advance tax payable by him by filing a statement under Section 209A (now omitted), thereby reducing the amount payable in either of the first two installments and therefore liable to pay interest under Section 216 of the Income Tax Act. With regards to the question of law, the Court observed that an assessee is not required to estimate his current income when submitting a statement under Section 209A(1)(a) of the Tax Code. He determines the advance tax based on the assessee’s total income reported in the return of income or, if higher, the assessed income. However, when the current income is expected to be higher than the income on which tax is being calculated for him and the amount of advance tax so payable by him is expected to exceed 33.33%, such an assessee is required to send an estimate of the current income and the advance tax payable by him on the current income to the income-tax officer before the last advance tax installment is paid under Section 209A (4).

Commissioner of Income Tax v. M/S. Hindustan Bulk Carriers (2002)

The time for which interest is due under Section 234B is in question in the current case before the Honorable Supreme Court of India. Three different categories of violations are covered by Sections 234A, 234B, and 234C. Interest is assessed for failure to provide a return of income under Section 234A. When a return of income for any assessment year submitted in accordance with subsection (1) or subsection (4) of Section 139, or in response to a notice submitted in accordance with subsection (1) of Section 142, is submitted beyond the due date or not at all, a penalty is imposed. The interest under section 234B, to which the current cases are related, is triggered by failures to pay advance tax. The Supreme Court ruled that when an order under Section 245(D)(4) is passed, followed by the quantification under its sub-section (6), interest must be levied on interest chargeable under Section 234B for the period starting on the first day of April following the relevant financial year until the date of the Commission’s ruling at the applicable rate.

Conclusion

We can conclude from all the facts and views that advance tax is a way of taking tax from an assessee in the same financial year and it helps in decreasing the burden of taxpayer to pay a large quantity at a time and also provide a regular and continuous source of income to the government.6

One has to pay the tax in 4 installments with 15%,45%,75% and 100% part of tax till 15^th June,15^th September,15^th December and 15^th March respectively.6 A person have computed its own tax payment according to his income with respect to the tax slabs provided by Income Tax Act,1961.6

If a person is failed in paying the advance tax till due dates, then he is charged with interest rate of 1% per month or on a part of tax of one month.

Advance payment tax is a way to reducing the stress, chaos which can happen if every taxpayer has to pay the tax in one instance for the last financial year.

It also reduces the burden of Income Tax Assessment Officers as the taxpayer is responsible for computing his own tax, the assessment officer just have to make sure that assessment of taxpayer should not be different from the assessment of Officer.

We can see from the given data that advance tax collection pays an important role and remains the highest tax contributor towards the Gross Total Direct Tax Collection during the period of the study of eighteen years.

References

https://incometaxindia.gov.in/
Advance-Tax-Tax-Deduction-at-Source-and-Introduction-to-Tax-Collection-at-Source.pdf
https://incometaxindia.gov.in/pages/tools/advance –tax –calculator.aspx
https://www.canarahsbclife.com/blog/tax –saving/what –is –advance –tax –and –how –is –it calculated.html
https://www.bankbazaar.com/tax/advance-tax.html

[1] https://en.m.wikipedia.org/wiki/Challan#:~:text=A%20challan%20or%20bank%20challan,into%20so meone’s%20account%20in%20cash .

[2] https://incometaxindia.gov.in/_layouts/15/dit/Pages/viewer.aspx?grp=Act&cname=CMSID&cval=10

2120000000075337&searchFilter= [%7B%22CrawledPropertyKey%22:1, %22Value%22: %22Act%22, %22 SearchOperand%22:2%7D, %7B%22CrawledPropertyKey%22:0, %22Value%22: %22Incometax%20Act, %201961%22, %22SearchOperand%22:2%7D, %7B%22CrawledPropertyKey%22:29, %22Valu e%22: %222020%22, %22SearchOperand%22:2%7D] &k=&IsDlg=0

[3] https://incometaxindia.gov.in/_layouts/15/dit/Pages/viewer.aspx?grp=Act&cname=CMSID&cval=10 2120000000075337&searchFilter= [%7B%22CrawledPropertyKey%22:1, %22Value%22: %22Act%22, %22 SearchOperand%22:2%7D, %7B%22CrawledPropertyKey%22:0, %22Value%22: %22Incometax%20Act, %201961%22, %22SearchOperand%22:2%7D, %7B%22CrawledPropertyKey%22:29, %22Valu e%22: %222020%22, %22SearchOperand%22:2%7D] &k=&IsDlg=0