Concept of Payment of Advance1Tax

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

 Concept of Payment of Advance2Tax

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

 Concept of Payment of Advance3Tax

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.
 Concept of Payment of Advance4Tax

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.
 Concept of Payment of Advance5Tax

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.
 Concept of Payment of Advance6Tax

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)
 Concept of Payment of Advance7Tax

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,
 Concept of Payment of Advance8Tax

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.
 Concept of Payment of Advance9Tax

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
 Concept of Payment of Advance10
Tax

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)]
 Concept of Payment of Advance11
Tax

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.
 Concept of Payment of Advance12
Tax

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
2. On or before 15th September
3. On or before 15th December
4. On or before 15th March
Not less than 15% of advance tax liability
Not less than 45% of the advance tax
liability, as reduced by the amount, if
any, paid in earlier instalment.
Not less than 75% of the advance tax
liability, as reduced by the amoun(s)t, if
any, paid in earlier instalment(s).
The whole amount of the advance tax
liability, as reduced by the amount(s), if
any, paid in earlier instalment(s).

2. For Non-company assessee:

Due date of instalment Amount payable

1. On or before 15th September
th
2. On or before 15 December
3. On or before 15th March
Not less than 30% of the advance tax
liability.
Not less than 60% of the advance tax
liability, as reduced by the amount, if
any, paid in earlier instalment.
The whole amount of the advance tax
liability, as reduced by the amount(s), if
any, paid in earlier instalment(s).

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.
 Concept of Payment of Advance13
Tax

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
 Concept of Payment of Advance14
Tax

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.
 Concept of Payment of Advance15
Tax

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.
 Concept of Payment of Advance16
Tax

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.