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Advance Payment of Tax (Section 207-211,218-219)

  1. Advance Tax Payable on current income [Section 207(1)]

  2. What constitutes 'Current Income' for calculating Advance Tax ?

  3. Senior citizen not required to pay advance tax [Section 207(2)]

  4. Conditions of Liability to pay Advance Tax [Section 208]

  5. Due Date of Instalments of Advacne Tax payable by all Assessees

  6. Payment of advance tax in pursuance of order of Assessing Officer -

  7. Computation and Payment of Advance Tax where the calculation is made by the assessee himself [Section 209(1)(a) and (d)]

  8. Payment of advance tax in case of capital gains/casual income [Proviso to section 234C]

  9. Assessee Deemed to be in Default even if he does not pay Advance Tax [Section 218]

  10. Credit for Advance Tax [Section 219]

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. 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 2017-18 shall be charged to tax in the assessment year 2018-19. But the assessee is required to pay tax, in advance, on the taxable income of financial year 2017-18 during the financial year 2017-18 itself.

Advance Payment of Tax (Section 207-211,218-219)

2. What constitutes 'Current Income' for calculating Advance Tax ?

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 as per provisions of the Income-tax Act, it is required to be so included.

3. 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–

  1. does not have any income chargeable under the head “Profits and gains of business or profession”; and

  2. is of the age of sixty years or more at any time during the previous year.

4. 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 Rs. 10,0001 or more.

5. Due Date of Instalments of Advacne Tax payable by all Assessees

Due date of instalment Amount payable
On or before the 15th June Not less than fifteen per cent. of such advance tax.
On or before the 15th September Not less than forty-five per cent 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 seventy-five per cent. 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;

Other points - One should also keep in view the following points –

  • Where advance tax is payable by virtue of the notice of demand issued by the Assessing Officer, the whole or the appropriate part of the advance tax shall be payable in the remaining instalments.

  • Any payment of advance tax made on or before March 31 shall be treated as advance tax paid during the financial year.

  • If the last day for payment of any instalment of advance tax is a day on which the receiving bank is closed, the assessee can make the payment on the next immediately following working day, and in such case, the mandatory interest leviable under sections 234B and 234C would not be charged.

5. Payment of advance tax by the assessee on his own account-

An assessee who is liable to pay advance tax is required to estimate his current income and pay advance tax thereon without having to submit any estimate or statement of income to the assessing authorities.

  • Revision of second and subsequent instalments -

  • After making payment of first or second instalment of advance tax, an assessee can revise the remaining instalment(s) of advance tax in accordance with his revised estimate of current income and pay tax accordingly without any requirement of filing the revised estimate of advance tax.

  • Computation of Tax -

    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*/collected* at source will be deducted. Calculation can be made on similar lines in the case of upward/downward revision of current income.

6. Payment of advance tax in pursuance of order of Assessing Officer -

The Assessing Officer may pass an order under section 210(3) requiring an assessee to pay advance tax on his current year’s income. The order must specify the different instalments in which the advance tax should be paid. Such order must be passed during the previous year but not later than last day of February. Such order passed by the Assessing Officer can be revised by him.

On receipt of such order, the assessee has the following options –

  • Payment of advance tax -

  • The assessee may pay advance tax as demanded by the Assessing Officer.

  • Lower estimate by the assessee -

  • On receipt of the notice from the Assessing Officer to pay advance tax, the assessee can submit his own estimate of lower current income/advance tax and pay tax accordingly. In such a case he has to send an intimation in Form No. 28A to the Assessing Officer.

  • Higher estimate by the assessee -

  • Alternatively, if the advance tax on current income, as per own estimate of the assessee, is likely to be higher than the amount estimated by the Assessing Officer, the assessee shall pay higher tax in accordance with his own calculation. In such case, no intimation to the Assessing Officer is required.

7. 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 education cess + SHEC 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 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)].

  • Step VIII — 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 mentioned in para 20.6.

8. 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:

  1. the amount of capital gains; or

  2. winnings from lotteries, etc.; or

  3. 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

  4. income of the nature referred to in section 115BBDA(1) i.e. the dividend received is in excess of Rs. 10,00,000.

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.

9. Assessee Deemed to be in Default even if he does not pay Advance Tax [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.

10. 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.

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