Advancing towards Advance Income Tax!

The Income Tax Act, 1961 expects the taxpayers to foresee the future and estimate their incomes in advance! No wonder why there are so many future tellers in India! But on a serious note, Advance tax was introduced so as to help both the government and the taxpayers. Collection of tax in easy installments aids the taxpayers, as they do not have to stress about paying a lump sum amount at the end of the Financial Year. Also, it speeds up the collection process and increases the state fund as the government earns an interest on the collected tax on a regular basis which in turn is used for the taxpayer’s benefit. The quarterly schedule saves taxpayers from defaulting on their income tax payments and helps businesses manage their finances systematically.

Advance tax refers to the income tax that should be paid in advance instead of lump sum payment at year end which is also known as pay as you earn tax. These payments have to be made in installments as per due dates provided by the Income Tax department.

The other widely known mechanism to collect tax in advance is TDS. It is a very effective mechanism which is used in combination with Advance Tax as certain incomes are not subject to TDS and further in many cases, the rate of TDS is less than the rate at which the income is taxed in the hands of a taxpayer.

Section 208 of the Income Tax Act, 1961 deals with advance tax payment and Section 234C of the Income Tax Act deals with delay in remitting advance tax payment.

Advance Tax liability arises when additional Income Tax liability (i.e. Income Tax liability in addition to the tax deducted at source by employers/others) for the Financial Year is estimated to be more than Rs.10,000. Typically, Advance Income Tax is paid if the taxpayer has an additional income in the form of interest, rent, capital gains, Income from business or profession, income earned abroad, etc.

Advance Income Tax is not payable in case of:

• A senior citizen, who does not have income from business or self-employment, or
• Additional Income Tax liability (in addition to the TDS) for the year does not exceed INR 10,000.

Due Dates for payment of Advance Tax

For individual, corporate taxpayers, taxpayers opting for Presumptive Taxation u/s 44AE

For taxpayers opting for Presumptive Taxation u/s 44AD

In addition to the above, Challan 280 is used to pay advance tax, regular assessment tax, self-assessment tax, tax on distributed income and profits, additional charges etc. which can be submitted online as well as offline via designated banks.

A Few Points to be noted while filling Challan 280

• Choose '(100) ADVANCE TAX' if paying taxes during the financial year. Choose '(400) TAX ON REGULAR ASSESSMENT' if paying tax in response to a demand notice from the Income Tax Department.
• Surcharge, education cess, interest and penalty can be left blank and the entire amount can e entered in the Income Tax field wholly.
• Saving a copy of the tax receipt or taking a screenshot to enter the BSR code and Challan number in the Income Tax return.
• BSR code is a 7-digit number and Challan serial number is of 5 digits.

Important Case Laws relating to Advance Tax and related provisions have been summarised below:

1. Rolta India Ltd. (SC): Interest under sections 234B and 234C shall be payable on the failure of the company to pay advance tax in respect of tax payable under MAT as per section 115JB.
2. Smt. Premlata Jalani vs Asst. CIT on 27 March, 2002: Interest u/s 234C would be payable only for the months till which advance tax was not paid after the arising of Capital Gains Income.
3. M/s. Mrf Ltd vs The DCIT on 4 August, 2016: The fact that an unanticipated income accrued in the last financial year, cannot be a ground not to pay advance tax with regard to the returned income, which includes the total income, on which tax is chargeable and on the failure to pay the advance tax, in instalments as provided for, under the Act or when the less amount is paid, the assessee is liable to pay interest u/s 234C.
4. Pr. CIT Vs Sh. Surinder Kumar Khindri, 2017: The assessee is entitled to adjustment of cash seized against its advance tax dues.