Advance Payment of Tax

STUDY NOTE - 24

ADVANCE PAYMENT OF TAX

This Study Note includes

• Provisions relating to Advance Payment of Tax

24.1 ADVANCE PAYMENT OF TAX

INTRODUCTION
Although the income of previous year of the assessee is taxable in the immediately following
assessment year, the assessee has to pay advance tax during the Financial Year proceeding the
assessment year on the basis of his own computation of income. At present all items of income
including capital gains, winnings from lotteries, etc. are liable for payment of advance tax.
Section 208 now makes it obligatory to pay advance tax in every case where the advance tax
payable is Rs. 5,000 or more.
Assessee is required to pay advance tax on their income which they expect to earn during
current Financial Year. Thus, for Financial Year 2008-09 (relevant to assessment year 2009-10)
advance tax is payable in installments during the Financial Year 2008-09, itself. The advance
tax so paid is adjusted against the total tax assessed for the assessment year 2009-10.

OBLIGATION TO PAY ADVANCE TAX

All persons including salaried employees, whose advance tax payable during a Financial Year
is Rs. 5,000 or more, are required to pay advance tax. The term “advance tax” for this purpose
means total tax on the estimated income for current Financial Year less TDS, which is required/
expected to be deducted at source, during the previous year, if any.
The provisions relating to advance tax apply to all assessees. It is clearly implicit therein that
a representative assessee is not exempt from liability to pay advance tax - Premier Automo-
biles Ltd. v. S.N. Shrivastava, ITO (SC)
The following are installments for advance tax –
i)For assessees other than companies :
By 15th September – 30% of advance tax
By 15th December – 60% of advance tax less advance tax paid earlier
By 15th March – 100% of advance tax less advance tax paid earlier
By 31st March – tax on capital gains or casual incomes arising after 15th March, if
any.

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ii)For company assessees :
By 15th June – 15% of advance tax
By 15th September – 45% of advance tax less advance tax paid earlier
By 15th December – 75% of advance tax less advance tax paid earlier
By 15th March – 100% of advance tax less advance tax paid earlier
By 31st March – Tax on capital gains or casual incomes arising after 15th March, if
any.
It may be pointed out that any amount deposited by 31st March is to be treated as advance tax
for that Financial Year.
If the last day for payment of any installments of advance tax is a day on which the receiving
bank is closed, the assessee can make the payment on the next succeeding working day - vide
circular No. 676, dated 14.1.1994.
Persons, who receives an order from the Assessing Officer under section. 210(3) to pay an
amount by way of advance tax should deposit such amount in the installments as mentioned
in the Order. Such an order can be served up to the last day of February of the Financial Year.
If person receiving the order estimates his income at a higher amount than that specified in the
Order under section 210(3), then he should pay advance tax in accordance with such higher
estimate. However, tax payable on current income is expected to be less than the amount of the
advance tax specified in AO’s order, the assessee should send an intimation in the prescribed
form no. 28A to the AO to that effect and pay such advance tax as accords with his lower
estimate. . [Sec. 210(4) and (5)]
Unsigned order by ITO is not valid (Bibhuti Bhusan Roy v. ITO, Chitra Cinema v. ITO)

COMPUTATION OF ADVANCE TAX

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- From tax so computed, deduct the rebate, if any , likely to be allowed u/s 88E.
Step IV- On the net tax , if any , computed at step III, add surcharge as applicable.
Step V – Add education cess to the amount computed at step IV
Step VI- Allow relief, if any , u/s 89.
StepVII- Deduct the tax deductible or collectable at source during the financial year from any
income which has been taken into account in computing the current income.
Step VIII- The balance amount is the advance tax payable provided it is Rs. 5000 or more.

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 Advance Payment of Tax

Payment of advance tax in case of capital gains/casual income [Proviso to section 234C]
(1) Advance tax is payable by an assessee on his/its total income, which includes
capital gains and casual income like income from lotteries, crossword puzzles etc.
(2) Since it is not possible for the assessee to estimate his capital gains, income from
lotteries, etc., it has been provided that if any such income arises after the due date
for any installment, then, the entire amount of tax payable (after considering tax
deducted at source) on such capital gains or casual income should be paid in the
remaining installments of advance tax which are due.
(3) Where no such installment is due, the entire tax should be paid by 31st March of
the relevant financial year.
(4) No interest liability under section 234C would arise if the entire tax liability is so
paid.
Credit for advance tax [Section 219]
Any sum, other than interest or penalty, paid by or recovered from an assessee as advance tax,
is treated as a payment of tax in respect of the income of the previous year and credit thereof is
given in the regular assessment.
Interest for default in payment of Advance Tax [Sec 234B, 234C]
Please refer Chapter ‘Interest’ on page no. 3 and 4
In case of section 115J cases - Interest is not leviable under sections 234B and 234C in the case of
assessment of a company on the basis of book profits under section 115J - CIT v. Kwality Biscuits
Ltd. 155 Taxman 658 (SC).
[Note: Now, although Section 115JA if not operative, similar provisions are made in Section
115JB, which are operative. CBDT has issued a circular that All companies are liable to pay
advance tax considering wording section 115JB. Therefore, interest under sections 234B and
234C is applicable for defaults in payment of advance tax - Circular : No. 13/2001, dated 9-11-
2001. The amendment of section 115JB(1) enabling Assessing Officer to levy interest under
sections 234B and 234C is constitutional - Jindal Thermal Power Co. Ltd. v. Dy. CIT 154 Taxman
547 (Kar.)].

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