Advance Tax Payment under Income Tax Act of 1961 in brief

Advance Tax payment is must for certain tax payers in India. In fact here, the reality is that taxes are required to be paid in advance, i.e. ‘pay as you earn’ and not at the end of year.

This scheme refers to paying most part of the taxes during the financial year itself to ensure a steady flow of income for the government and applies to all category of taxpayers, i.e. corporate as well as non-corporates, and non compliances may attract penal consequences, and thus it is imperative to understand the correct provisions, i.e. applicability, due date, etc.

In accordance with section 208, any person whose estimated tax liability is Rs. 10,000 or more for the year shall pay his tax in advance in the form of “advance tax.”

 Person not liable to pay tax:

A senior resident citizen (i.e., a person aged 60 years or older during the appropriate financial year) who has no business or professional revenue shall not be responsible to pay advance tax.

Illustration :1

Mr. Rumit runs a supply shop. The store’s turnover for the 2020-21 financial year was Rs. 1,84,00,000. He intends to declare revenue at 8 percent of the turnover under section 44AD. There is no other source of revenue for him. Will he be responsible for paying the advance tax?

Mr. Rumit fulfils the requirements of section 44AD with regard to supply shops and, accordingly, the provisions of section 44AD may be adopted and revenue declared at 8% of turnover. A taxpayer who opts for section 44AD’s presumptive tax system is also responsible to pay advance tax in regard of the company covered by section 44AD. Therefore, if Mr. Rumit adopts the provisions of section 44AD, he shall also be responsible for paying advance tax on revenue produced from such supply store.

Due Dates for Payment of Advance Tax:

Advance tax is payable in various instalments. The due dates for payment of various advance tax instalments are as follows:[1]

Intricacies present:

Tax may be computed on the present financial gain (estimated by the taxpayer) at the rates good throughout the year. From the tax thus computed, tax subtracted or collected at supply are subtracted and therefore the balance tax collectable are allowed to figure the advance liabilities.3 Also, relief of tax allowed below section 90 or section 90A or any deduction below section 91 or any diminution allowed to be go away as per section 115JAA or section 115JD shall even be subtracted whereas computing the advance liabilities.

It was held in Asst Commissioner of Income Tax vs M/S AR Enterprises, “Payment of Advance Tax may be a relevant factor in construing intention to disclose income or filing return as long as the assessee continues to have the opportunity to file return and disclose his income and not past the due date of filing return. There can therefore be no generic rule regarding the significance of Advance Tax payment in the construction of income disclosure intention. The same depends on the facts of the case and depends on the positioning of the search operations qua the due date for the returns to be filed.

So, at the very beginning, in our opinion, the question of whether an assessee is paying Advance Tax per se is equivalent to the disclosure of total income to be replied to in the negative for the relevant evaluation year.4

On further scrutiny, we find yet another reason to opine so. Payment of Advance Tax and filing of return are functions of completely different notions of income i.e. estimated income and total income respectively. The payment of Advance Tax is based on an estimation of the total income that is chargeable to tax and not on the total income itself.

If we were to hold that the payment of Advance Tax reflects the intention of the assessee to disclose its income, it could result in a situation where the mandatory obligation of filing a return for disclosure of income under the provisions of the Act, would not be necessary. It will be open to an assessee to contend that payment of Advance Tax is tantamount to disclosure of income. Such a proposition would be contrary to the very purpose of filing of return, which ultimately leads to assessment of total income for the relevant assessment year. Any anomaly in the return entails serious consequences, which may not otherwise be attracted on estimation of income for the purpose of payment of Advance Tax. It would thus, be difficult to accept the plea that payment of Advance Tax is tantamount to the disclosure of income or that it indicates the intention of the assessee to disclose income.”

In Brij Lal & Ors. Vs. Commissioner of Income Tax, Jalandhar, while explaining the scope of the provisions on Advance Tax, this Court expressed the view that the “current income” in respect of which the assessee pays Advance Tax is not the same as in paragraph 2(45). In this respect, the Court ruled: “Section 207 provides for the liability to pay advance tax. The said chapter is based on the ‘ pay as you earn ‘ principle. During the financial year, it needs tax to be paid.

It has to be in respect of the total income of the assessee which would be chargeable to tax under the Act. The said total income is not as understood in Section 2(45) but it is equated to “current income” for the purposes of Chapter XVII. After the amending Act of 1987, advance tax is to be paid on the current income which would be chargeable to tax for the assessment year immediately following the financial year. Section 210 makes the assessee responsible for paying the advance tax without requiring the assessee to submit his advance tax estimate payable. Pre-tax payment provision is a way to collect tax quickly.5

Section 207 defines, therefore, the liability to pay pre-tax in regard of the income referred to in Section 208. Advance tax paid, however, can be adjusted to the tax due. Pre-tax is, by its very nature, the collection of taxes either by deduction of tax at source or by payment of advance tax to be adapted to the income tax levied on the total revenue. The above two methods of realisation even before any assessment is authorised by Section 4(2) are incorporated in Chapter XVII which deals with “collection and recovery”.

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Disclaimer:- The entire contents of this document have been prepared on the basis of relevant provisions and rules and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information.

[1] Advance Tax Payment – Section 208 Of Income Tax – Indiafilings’ (IndiaFilings – Learning Centre, 2021) <https://www.indiafilings.com/learn/advance-tax-payment/>