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Pay as you earn scheme of advance tax

CA Kumar Kedia 
on 08 July 2015

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In today’s Scenario, the collection of advance tax by Government of India amounts to a big share in the revenue of Indian Economy. Advance tax is paid in the year in which income is received. Therefore, it is popularly known as “PAY AS YOU EARN SCHEME”.

Now, starting with a short introduction of Advance Tax, as the name suggests it is the tax to be paid in advance for the income of particular financial year.  The payment of Advance tax is governed under the Income Tax Act, 1961. Sections 207 to 219 of the act cover the liability for payment of advance tax within the specified time limit to avoid any negative consequences, whereas Sections 234A, 234B and 234C covers the penal interest chargeable in case of any non- compliance in the payment of Advance Tax.

When an assessee is liable to pay advance tax?

According to the provisions of Section 208, If the Income Tax liability of any tax payer is Rs.10,000 or more, the obligation to pay advance tax arises. The assessee needs to estimate his current income and pay the advance tax thereon. There is no need to submit any estimate or statement of income to the Assessing officer, except where notice has been served by the Assessing Officer. The only exemption from the payment of Advance tax has been provided to resident individual not having any income chargeable under the head “Profit and gains of business or profession “ provided that age of person is 60 years or more.

Proper procedure regarding the payment of advance tax

Now, we need to understand the proper procedure regarding the payment of advance tax. Advance Tax shall be paid by the companies and other assessee as per the provisions of Section 211 of the Income Tax Act, 1961 which provide the companies shall pay the advance tax liability in 4 installments and the assesses other than companies shall pay the same in 3 installments in the following manner:

COMPANIES

Due date of Installments

Amount payable

On or before 15th June

Not less than 15% of advance tax liability

On or before 15th September

Not less than 45% of advance tax liability, as reduced by the amount or amounts, if any paid in the earlier installments.

On or before 15th December

Not less than 75% of advance tax liability, as reduced by the amount or amounts, if any paid in the earlier installments.

On or before 15th March

The whole amount of advance tax liability, as reduced by the amount or amounts, if any paid in the earlier installments.

Non-Corporate Assessee

Due date of Installments

Amount payable

On or before 15th September

Not less than 30% of advance tax liability,.

On or before 15th December

Not less than 60% of advance tax liability, as reduced by the amount or amounts, if any paid in the earlier installments.

On or before 15th March

The whole amount of advance tax liability, as reduced by the amount or amounts, if any paid in the earlier installments.

Penalty chargeable as per Sections 234A, 234B and 234C

The non-compliance of above section will lead to the penalty chargeable in form of interest as per Sections 234A, 234B and 234C.

In case of payment of income tax after the expiry of last date of filing of return of income Section 234A is attracted, the interest liability under which is 1% per month for the period subsequent to the last date of fling of return of income.

In case of payment of advance tax less than 90% of assessed tax, Section 234B is attracted under which the interest liability is 1% per month from 1st April following the financial year to the date of determination of income.  The interest shall be calculated on the difference between assessed tax and advance tax paid.

In case of deferment of advance tax beyond due dates Section 234C is attracted, the interest liability under which is 1% per month for a period of 3 months for every deferment. However, the interest liability in case of instalment payable on 15th march is 1% per month for 1 month. The interest shall be calculated on the difference between the amount arrived at by applying specified percentage for the period on the tax of returned income  and the actual amount of tax paid by the due date. A Special provision has been inserted in case of payment of advance tax by companies under which if the advance tax paid by company up to 15th June is 12% of tax payable and up to 15th September is 36% of tax payable, no penal provision under Section 234C is attracted in case of default in such installment

The advance tax is paid on the total income including capital gain, casual income etc. It would not be possible for the assesse to estimate Capital gain and Casual income. In such a case, if any such income arises after the due date for any installment, the tax on such income shall be paid in the remaining installments of advance tax which are due and where no such installment is due on the date at which such income arises, the tax on the same shall be paid by 31st March of the relevant financial year.

Some other relevant provisions:

Some other relevant provisions regarding the advance tax are discussed below:

As per Section 244A any assesse if eligible for the refund shall be allowed interest @ 0.5% per month from the 1st April of following year up to the date on which such refund is granted. However, no interest is paid in case of refund being less than 10% of the tax liability.

As per Section 209 and 210 the Assessing officer has the power to direct the Assessee who has been already assessed by the way of regular assessment in respect of total income of previous year, to pay the advance tax a per his opinion by serving a written notice under Section 210(3) requiring the assessee to pay tax in Form 28.

Conclusion:

The discussion to the basic knowledge about the payment of advance tax comes to an end with a conclusion that the pay as you earn scheme is quite a good way for the government as it helps to receive a constant flow of receipts throughout year so that expenses can be incurred rather than receiving all tax payments at the end.

-By Kumar Kedia


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