Advance Payment of Tax (24)
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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 Automobiles 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.
Applied Direct taxation
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.
Applied Direct taxation
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.
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.
Where no such installment is due, the entire tax should be paid by 31st March of the relevant financial year.
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 9-112001. 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.)].
Applied Direct taxation