The Concept of Advance Payment of Tax

1Concept of Payment of Advance Tax

CONCEPT OF ADVANCE PAYMENT OF TAX

Submitted to:

Mr. Rana Navneet Roy

(Faculty: Taxation Law)

Submitted By:

Monidipa Sengupta

Semester-V

Section A

Roll No: 72

Hidayatullah National Law University

Raipur (C.G)

Submitted on: 1st September, 2014


ACKNOWLEDGEMENTS

I feel highly elated to work on the topic ‘The Concept of Advance Payment of Tax’. The practical realization of this project has obligated the assistance of many persons. I express my deepest regard and gratitude to my teachers for their unstinted support. Their consistent supervision, constant inspiration and invaluable guidance have been of immense help in understanding and carrying out the nuances of the project report.

I would like to thank my family and friends without whose support and encouragement, this project would not have been a reality. I take this opportunity to also thank the University and the Vice Chancellor for providing extensive database resources in the Library and through Internet.

My gratitude also goes out to the staff and administration of HNLU for the infrastructure in the form of our library and IT Lab that was a source of great help for the completion of this project

Some printing errors might have crept in, which are deeply regretted. I would be grateful to receive comments and suggestions to further improve this project report.

Monidipa Sengupta

Semester V

Roll No. : 72

Hidayatullah National Law University


INTRODUCTION

Advance payment of tax is another method of collection of tax by the Central Government in

the form of pre-paid taxes. Such advance tax is in addition to deduction of tax at source or

collection of tax at source. Scheme of advance payment of tax is also known as ‘pay as you

earn’ scheme that is the assessee is required to pay tax during the course of earning of income

in the previous year itself, though such income is chargeable to tax during the assessment

year. Advance tax is payable on current income in instalments during the previous year.

Every person who is liable to pay advance tax under Section 208 (whether previously or

regularly assessed) shall, of his own accord, pay, on or before each of the due dates

prescribed in Section 211, the appropriate percentage, specified in the section, the advance

tax on his current income, calculated in the manner specified in Section 209.

Under Section 210(2), a person who pays any instalment or instalments of advance tax, may

increase or reduce the amount of advance tax payable in the remaining instalment or

instalments in accord with his estimate of his current income and the advance tax payable

thereon, and make payment of the said amount in the remaining instalment or instalments

accordingly.


OBJECTIVES OF STUDY

1. To study who is liable to pay advance tax.

2. To study the computation and instalments of advance tax.

3. To study the payment and consequences of default in payment of advance tax.


RESEARCH METHODOLOGY

This project report is based on analytical and descriptive Research Methodology. Secondary

and Electronic resources have been largely used to gather information and data about the

topic.

Books and other reference as guided by Faculty have been primarily helpful in giving this

project a firm structure. Websites and articles have also been referred.


ORGANISATION OF STUDY

Section 1: Who must pay advance tax (Section 207-208)

Section 2: Computation of advance tax (Section 209)

Computation of advance tax where the calculation is made by the assessee

himself

Computation of tax by assessing officer

Section 3: Instalments of advance tax and due dates (Section 211)

For company assessee

For non-company assessee

Section 4: Payment of advance tax (Section 210)

By the assessee of his own accord

In pursuance of an order or amended order by the assessing officer

Section 5: Default in payment of advance tax (Section 217,218,234B and 234C)


SECTION 1: WHO MUST PAY ADVANCE TAX

(SECTION 207-208)

The Direct Tax Laws (Amendment) Act, 1987, has introduced major changes in the

provisions relating to advance payment of tax with a view to simplifying and rationalising

these provisions. The main features of the new provisions are:

1. Advance tax is now to be paid by the assessee on the current income including capital

gains and income of casual nature referred to in Section 2(24)(ix), which were hitherto

not liable to the payment of advance tax.

2. Various income limits applicable to different categories of persons for being liable for

payment of advance tax have been replaced by a single provision whereby advance

tax is payable by a person only if the liability to pay advance tax is Rs. 1,500 or more.

3. The existing requirement of filing statements or estimates of income by the assesses

has been dispensed with. Assesses will just deposit the advance tax on the basis of

their calculations.

4. With the adoption of the financial year as the uniform previous year for all assesses,

advance tax will now be payable in all cases in three instalments due on 15th

September, 15th December and 15th March.

New sections 207 and 208 relating to liability for payment of advance tax-

Under the old provisions of Section 207, advance tax was payable on income other than

income chargeable under the head “capital gains” and income of casual nature referred to

in Section 2(24)(ix). The exclusion of these incomes was due to the fact that these were

not income of regular nature and could not reasonably be forseen. The exclusion,

however, meant that part of the income liable to tax was left uncovered by advance tax.

Moreover there is no justification for leaving these items of income out of the advance tax

net, because even such incomes accruing to the assessee, at least till the date of last

instalment, which is now 15th March in all cases, will be known to the assessee and he can

very well pay advance tax in the last instalment. The Amending Act of 1987 has,

therefore, substituted a new section 207 to provide that advance tax shall be payable

during any financial year on the current income of the assessee which would be

chargeable to tax for the assessment year immediately following the financial year. This

will include all items of income liable to be included in the assessee’s total income. Thus,


capital gains and incomes of casual nature referred to in section 2(24)(ix) will also be

taken into account while estimating the current income for payment of advance tax.

According to Section 208, advance tax shall be payable during a financial year, only

when the amount of such advance tax payable by the assessee during that year is Rs.

10,000 or more.

Senior citizens not required to pay advance tax:

According to Section 207(2) the provision of advance tax shall not apply to an individual

resident in India, who-

a) Does not have any income chargeable under the head “profits and gains of

business or profession”; and

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


SECTION 2: COMPUTATION OF ADVANCE TAX

(SECTION 209)

A. Computation of advance tax where the calculation is made by the assessee himself:

The amount of advance tax payable by an assessee in the financial year on his own accord as

per Section 210(1) or Section 210(2) or Section 210(5) or Section 210(6) on the estimated

current income shall be computed as follows:

1. Estimate the current income of the financial year for which the advance tax is

payable.

2. Compute tax on such estimated current income at the rate(s) of tax given

under Part III of the First Schedule of the relevant Finance Act.

3. Add surcharge if applicable. Surcharge is applicable in case of a company

assessee only.

4. Add education cess and Secondary and Higher Education Cess to the

computed amount.

5. Allow relief, if any, under Section 89, Section 90, Section 90A and Section 91.

6. In case of a company, deduct credit, if allowable under Section 115 JAA

(MAT credit) of the tax paid in earlier years.

7. Deduct the tax deductable or collectable at source during the financial year

from any income (as computed before allowing deduction admissible under

the Act) which has been taken into account in computing the current income.

[Section 209(1)(d)]

8. The balance amount is the advance tax payable provided it is Rs. 10,000 or

more. However, it will be payable in certain instalments as previously

mentioned.

Once it is found that the liability to deduct tax in case of payment to non resident was that of

payer and the payer has defaulted in deducting the tax at source, the Department can take

action against the payer under the provisions of Section 201. Further, although non-resident is

not absolved from payment of tax thereupon and thus liable to pay tax but the question of

payment of advance tax would not arise because as per Section 209(1)(d) the income tax

calculated as per Section 209(1)(a) , (b) or (c) shall in each case be reduced by the amount of

income tax deductible or collectable at source during the said financial year. Hence, due to


above reasons, it would not be permissible for the revenue to charge any interest under

Section 234B of the Act.1

Current income will include all items of income. It includes capital gains (both long-term and

short-term), winnings from lotteries, crossword puzzles etc. For computation of advance tax

on the current non-agricultural income, even agricultural income will be included for rate

purposes, wherever by the provisions of the Income Tax Act, it is required to be so included.

B. Computation of tax by assessing officer:

The assessing officer, for the computation of advance tax, shall take the current

income of the assessee to be the higher of the following two:

a) The Total Income of the latest previous year in respect of which the assessee

has been assessed by way of regular assessment (it will also include

agricultural income of such previous year which has been taken into account

for rate purposes); or

b) The Total Income returned by the assessee for any previous year subsequent

to the previous year for which regular assessment has been made (it will also

include agricultural income of such previous year which has been taken into

account for rate purposes).

Tax on above current income at the rate in force during the financial year will be

calculated by the assessing officer. From such tax calculate, the amount of income

tax which would be deductible or collectable at source during the said financial

year shall be reduced and the amount of income tax as so reduced shall be the

advance tax payable.

If after making the above order, by the assessing officer, but before 1st March,

a) A return of income is furnished by the assessee under Section 139 or in

response to a notice under Section 142(1); or

b) A regular assessment of the assessee is made in respect of a later previous

year, for any higher figure,

then the assessing officer may amend his order and issue to such assessee a

notice of demand under Section 156 on the basis of income declared in such

return or income so assessed ((it will also include agricultural income of such

1 DIT v. Jacobs Civil Incorporated & Mitsubishi Corporation [(2011) 330 ITR 578 (Del)]


previous year which has been taken into account for rate purposes). On receipt

of the revised order, the assessee will have to pay advance tax accordingly.

Such sum will be payable at the appropriate percentages on or before the due

dates specified in Section 211 falling after the date of the amended order.


SECTION 3: INSTALMENTS OF ADVANCE TAX AND DUE DATES

(SECTION 211)

In the case of non-company assesses, advance tax has to be paid in three instalments.

However, in the case of a company assessee, advance tax is payable in four instalments.

1. For company assessee:

Due date of instalment Amount payable

1. On or before 15th June Not less than 15% of advance tax liability

2. On or before 15th September Not less than 45% of the advance tax

liability, as reduced by the amount, if

any, paid in earlier instalment.

3. On or before 15th December Not less than 75% of the advance tax

liability, as reduced by the amoun(s)t, if

any, paid in earlier instalment(s).

4. On or before 15th March The whole amount of the advance tax

liability, as reduced by the amount(s), if


2. For Non-company assessee:

Due date of instalment Amount payable

1. On or before 15th September Not less than 30% of the advance tax

liability.

2. On or before 15th December Not less than 60% of the advance tax

liability, as reduced by the amount, if

any, paid in earlier instalment.

3. On or before 15th March The whole amount of the advance tax

liability, as reduced by the amount(s), if


Although, last date of payment of advance tax is 15th March of the relevant financial year, but

any amount paid by way of advance tax on or before 30th March shall also be treated as


advance tax paid for that financial year. The assessee will be liable to pay interest on the late

payment.

If the advance tax is payable on the basis of order or amended order passed by the assessing

officer which is served after any of the due dates specified above, the appropriate amount or

the whole advance tax, as the case may be, specified in such order, shall be payable on or

before each of such of those dates as fall after the serving of the order.

If the last day of payment of any instalment of advance tax is on a day on which the receiving

bank is closed, the assessee can make the payment on the next immediately following

working day. In such cases interest on late payment will not be charged.2

The Supreme Court in the case of CIT v. Ogale Glass Works Ltd.3and the Andhra Pradesh

High Court in the case of K. Venkata Reddy v. CIT4 held that the date of payment of amount

by a cheque will be the date of the presentation of the cheque and not the date of clearing, if it

is not dishonoured.

2 Circular No. 676, dated 14th January, 1994.3 (1954) 25 ITR 529 (SC)4 (2001) 250 ITR 147 AP


SECTION 4: PAYMENT OF ADVANCE TAX

(SECTION 210)

A. By the assessee of his own accord [Section 210(1)]

Every person who is liable to pay advance tax under Section 208 (whether previously

or regularly assessed) shall, of his own accord, pay, on or before each of the due dates

prescribed in Section 211, the appropriate percentage, specified in the section, the

advance tax on his current income, calculated in the manner specified in Section 209.

Under Section 210(2), a person who pays any instalment or instalments of advance

tax, may increase or reduce the amount of advance tax payable in the remaining

instalment or instalments in accord with his estimate of his current income and the

advance tax payable thereon, and make payment of the said amount in the remaining

instalment or instalments accordingly.

B. In pursuance of an order or amended order by the assessing officer[Section 210(3)

and 210(4)]

Although it is mandatory for the assessee to calculate and pay advance tax, the

assessing officer may pass an order under Section 210 (3) or an amended order under

Section 210(4) and issue a notice of demand under Section 156 requiring the assessee

to pay advance tax. Such order can be passed by the assessing officer on the assessee,

only whe the following conditions are satisfied:

i. The assessee has already been assessed by way of regular assessment in

respect of the Total Income of any previous year.

ii. Such notice can be issued whether the assessee has paid any instalment of

advance tax or not.

iii. The assessing officer is of the opinion that such person is liable to pay advance

tax.

iv. Such order can be passed at any time during the financial year, but not later

than the last day of February.

v. Such order must be made in writing.

vi. The notice of demand must specify the amount of advance tax and the

instalment or instalments in which such advance tax is to be paid.


SECTION 5: DEFAULT IN PAYMENT OF ADVANCE TAX

(SECTION 218, 219, 234B AND 234C)

If any assessee doesn’t pay on the date specified in Section 211(1), any instalment of advance

tax that he is required to pay by an order of the assessing officer under Secton 210(3) or

210(4) and does not, on or before the date on which any such instalment as is not paid

becomes due, send to the assessing officer an intimation under Section 210(5) or does not pay

on the basis of his estimate of his current income the advance tax payable by him under

Section 210(6), he shall be deemed to be an assessee in default in respect of such instslment

or instalments.

Any sum, other than a penalty or interest, paid by or recovered by an assessee as advance tax,

shall be treated as payment of tax in respect of the income of the previous year and credit

thereof shall be given to the assessee in the regular assessment.

If advance tax is not paid or the amount of advance tax paid is less than 90% of the assessed

tax, the assessee shall be liable to pay simple interest at the rate of 1% per month from the

first day of April following the financial year, under Section 234B.

Similarly, if payment of advance tax is deferred beyond the due dates, interest at the rate of

1% per month, for 3 months, shall be payable for every deferment, except for the last

instalment of 15th March where it will be 1% for one month, under Section 234C.


BIBLIOGRAPHY

A C Sampath Iyengar, The Law of Income Tax, Bharat Law House

Chaturvedi and Pithisaria’s Income Tax Law

Vinod K Singhania and Monica Singhania, Taxman’s Direct Tax- Law and Practice.

Documents

The Concept of Advance Payment of Tax