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 i.e., 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.
1. Liability for payment of Advance Tax [Section 207]
(A) Advance tax payable on current income [Section 207(1)]
As per the various provisions of advance tax [sections 208 to 219], tax shall be payable in advance during the financial year in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year. Such total income shall be referred to as "Current income" in this Chapter. We know that income earned during the financial year 2019-20 shall be charged to tax in the assessment year 2020-21. But the assessee is required to pay tax, in advance, on the taxable income of financial year 20 19-20 during the financial year 2019-20 itself.
(B) Senior citizen not required to pay advance tax [Section 207(2)]
The provisions 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.
2. Conditions of Liability to pay Advance Tax [Section 208]
Advance Tax, as computed in accordance with the provisions of this Chapter, shall be payable during a financial year, only when the amount of such advance tax payable by the assessee during that year is 10,000 or more.
(A) Computation and Payment of Advance Tax where the calculation is made by the assessee himself [Section 209(1)(a) and (d)]
The amount of advance tax payable by an assessee in the financial year on his own accord as per section 210(1) or 210(2) or 210(5) or section 210(6) on the estimated current income shall be computed as follows:
Step I — Estimate the current income of the financial year for which the advance tax is payable.
Step II — 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.
Step III — On the net tax. if any, computed at Step III, add surcharge if applicable.
Step IV — Add health and education cess to the amount computed under step IV.
Step V — Allow relief, if any, under section 89, 90, 90A & 91.
Step VI — Deduct credit, if allowable, under section 115JAA (MAT credit) or 115JD (AMT credit) of the tax paid in earlier years.
Step VII — Deduct the tax deductible or colleciable 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)].
Step VIII— The balance amount is the advance tax payable provided it is U0,000 or more.
However, it will be payable in certain instalments as mentioned in para 20.6.
3. Payment of Advance Tax by the Assessee
(A) By the Assessee on his own accord under section 210(1):
Every person who is liable to pay advance tax under section 208 whether or not he has been previously assessed by way of regular assessment) shall, of his own accord, pay, on or before each of the due dates specified in section 211, the appropriate percentage, specified in that section, of the advance tax on his current income, calculated in the manner laid down in section 209.
Increase or decrease of subsequent instalments [Section 210(2)]:
A person who pays any instalment or instalments of advance tax under sub-section (1), may increase or reduce the amount of advance tax payable in the remaining instalment or instalments to 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) Payment of advance tax in pursuance of an order / amended order of Assessing Officer under sections 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 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 Assessing Officer on the assessee, only when the following conditions are satisfied:
(i) The assessee has already been assessed by way of a 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 should specify the amount of advance tax and the instalment or instalments in which such advance tax is to be paid.
Computation of tax by Assessing Officer [Section 209(1)(b) read with section 209(2)(a)]:
The Assessing Officer, for determining the advance tax payable by the assessee under section 210(3). shall take the current income of the assessee to be the higher of the following two:
(1) The Total Income of the latest previous rear 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
(2) 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 calculated, 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.
Amendment of Order for payment of Advance Tax [Section 210(4)]:
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 (such income shall also include agricultural income 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 shall be payable at the appropriate percentages on or before the due dates specified in section 211 falling after the date of amended order.
Assessee can submit his own estimate if its current income is likely to be lower [Section 210(5) and Rule 39]:
On receipt of the order/amended order to pay advance tax from the Assessing Officer, the assessee, if in his estimation, the advance tax payable on his current income would be less than the amount of the advance tax specified in such order/amended order, can submit his own estimate of lower current income and pay advance tax on the basis of his estimation at appropriate percentages on or before the due dates specified in section 211 falling after the date of order / amended order. In such a case, the assessee will have to send an intimation in Form No. 28A to the Assessing Officer on or before the due date of last instalment specified in section 211.
Assessee to par advance lax on his own estimate if its current income is likely to be higher [Section 210(6)]:
If the assessee estimates that current income is likely to be higher than the amount estimated by the Assessing Officer in the order/amended order or in the intimation sent by him under section 210(5), the assessee shall pay whole of such higher tax according to his own estimate on or before the due date of each instalment specified in section 211. In this case, there is no need to send an intimation in Form No. 28A to the Assessing Officer.
Net agricultural income to be taken into account for computing advance tax [Section 209(2)]:
The amount of advance tax payable by an assessee in the financial year calculated by:
(i) The assessee on his own accord by estimate in current income; or
(ii) The Assessing Officer in pursuance of order under section 210(3) or revised order under section 210(4).
is subject to the provisions of section 209(2), which states that the net agricultural income is to be taken in to account for the purpose of computation of advance tax.
Which year's agricultural income is to be included in the current income for computing advance lax:
As already stated above, agricultural income forms part of current income for computing advance tax on non-agricultural income. A question which may arise is which years agricultural income is to be included? This can be discussed under the following two situations:
(1) Where the advance lax is to be paid by the assessee on the basis of his estimate of his current income:
It shall be estimated agricultural income of current financial year relevant to assessment year for which advance tax is payable.
(2) Where the advance lax is parable in pursuance of an order/amended order of Assessing Officer under section 210(3) and 210(4):
It shall be—
(a) that agricultural income which has been taken into account for rate purposes in respect of which the assessee has been assessed by way of regular assessment; or
(b) that agricultural income which has been taken into account for rate purposes in respect of total income returned by the assessee for any previous year subsequent to the previous year for which regular assessment has been made.
4. Instalments of Advance Tax and Due Dates [Section 211]
Advance tax on the current income calculated in the manner laid down in section 209 shall be payable as under—
(1) Due date of instalments of advance tax payable by all Assessees other than covered under section 44AD or 44ADA [Section 211(1)(a)]:
All the assessees, other than the assessee referred to in clause (b) of section 211(1) (see para (2) below), who are liable to pay the advance tax shall pay the same, in four instalments during each financial year and the due date of each instalment and the amount of such instalment shall be as specified in the Table below:
Due date of instalment
On or before the 15th June
Not less than 15%. of such advance tax.
On or before the 15th September
Not less than 45% of such advance tax, as reduced by the amount, if any, paid in the earlier instalment.
On or before the 15th December
Not less than 75%. of such advance tax, as reduced by the amount or amounts, if any, paid in the earlier instalment or instalments.
On or before the 15th March
The whole amount of such advance tax, as reduced by the amount or amounts, if any, paid in the earlier instalment or instalments;
(2) Advance tax payable by the Assessee covered under section 44AD or 44ADA [Section 211(1)(b)]:
An eligible assessee in respect of—
— an eligible business referred to in section 44AD
— an eligible profession referred in section 44ADA
is liable to pay advance tax, to the extent of the whole amount of such advance tax during each financial year on or before the 15th March:
Marginal Relief :
Marginal relief shall be available and, in such cases, the total amount payable as income-tax and surcharge on current income exceeding Rs. 50 Lakhs / Rs. 1 Crore, as the case may be, shall not exceed the total amount payable as income-tax on a current income of Rs. 50 Lakhs / Rs. 1 Crore by more than the amount of income that exceeds Rs. 5 Crore / Rs. 1 Crore. Similarly, marginal relief will also be available where the current income of the company exceeds Rs. 1 Crore or Rs. 10 Crore, as the case may be.
Health and Education Cess (H&EC) :
In all the above cases, health and education cess @ 4% shall be levied on the total tax (including surcharge if applicable) payable by the assessee.
5. Payment of Advance Tax in case of Capital Gains / Casual Income [Proviso to section 234C]
As already discussed, advance tax is payable on all types of income, including capital gains and winnings of lotteries, crossword puzzles, etc. however, it is not normally possible for an assessee to estimate the following incomes:
(i) the amount of capital gains: or
(ii) winnings from lotteries, etc.; or
(iii) income under the head "business or profession" in cases where the income accrues and arises under the said head for the first time as the business might have been started after certain due dates of payment of advance tax; or
(v) income of the nature referred to in section 115BBDA (1) i.e. the dividend received is in excess of Rs. 10 Lakhs.
Therefore, in such cases, it is provided that if any such income arises after the due date of any instalment, then, the entire amount of tax payable (after deduction of tax at source, if any) on such capital gain or winnings from lotteries, etc. or income from business or profession or income from dividend should be paid in remaining instalments of advance tax which are due or where no such instalment is due, by 31st March of the relevant Financial Year. If the entire amount of tax payable is so paid, then no interest on late payment will be leviable.
6. Assessee Deemed to be in Default [Section 218]
If any assessee does not 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 section 210(3) or(4) and does not, on or before the date on which any such instalment as is not paid become 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 instalment or instalments.
7. Credit for Advance Tax [Section 219]
Any sum, other than a penalty or interest, paid by or recovered from an assessee as advance tax, shall be treated as a 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.