When does the Liability to pay advance tax under Income Tax Act arise?

CA Mehul Thakker , Last updated: 05 December 2020
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Dear Students / Readers

Let us start with a small practical scenario

Mr.Jitendra, resident, 52 years, provides the following information.

(i) Tax on current income: Rs. 15,500
(ii) TDS on interest by ABC & Co.: Rs. 6,900

Advise him, whether he is liable to pay advance tax for the current financial year assuming that ABC & Co. fails to deduct TDS while making payment of interest to Mr.Jitendra?

What would have been your advice if Mr.Jitendra is of 72 years and does not carry on any business or profession?

Before advising Mr.Jitendara, let us comprehend the provisions of sections 207,208, and 209 first.

Section 207 and 208

• Tax shall be payable in advance during any 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 income shall be referred to as "current income".

When does the Liability to pay advance tax under Income Tax Act arise

• The liability to pay advance tax arises where the "advance tax payable" is Rs.10,000 or more.

• The above provision shall not apply to an individual resident in India, who-

(a) does not have any income chargeable under the head "Profit and gains of business or profession"; and

(b) is of the age of 60 years or more at any time during the previous year.

Section 209

• First estimate the current income

• Compute "advance tax payable" as per the following format

Particulars	Rs.
Compute tax on current income at the rate in force in the financial year	XXXX
Less: TDS/TCS [Such reduction is possible only when TDS/TCS has actually been deducted or collected]	(XXX)
Advance Tax Payable	XXXX

Advice to Mr.Jitendra

Computation of Advance Tax Payable by Mr.Jitendra would be as under:

Particulars	Rs.
Compute tax on current income at the rate in force in the financial year	15,500
Less: TDS [Such reduction is not possible because ABC & Co. fails to deduct TDS]	Nil
Advance Tax Payable	15,500

Since "Advance Tax payable" by Mr.Jitendra is Rs.15,500 which is exceeding the statutory limit of Rs.10,000 or more, therefore, he is advised to pay advance tax.

If Mr.Jitendra is of 72 years and does not carry on any business or profession.

As discussed above, the provision relating to advance tax shall not apply to an individual resident in India, who-

(a) does not have any income chargeable under the head "Profit and gains of business or profession"; and
(b) is of the age of 60 years or more at any time during the previous year.

Since both the above conditions are satisfied, therefore, Mr.Jitendra(72 years) is advised not to pay advance tax.

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