ADVANCE PAYMENT OF TAX

Sections
Section
207
208
209
210
211
218
219
234B
234C
234C
115JB

from this Chapter

Particulars
Liability for payment of Advance Tax
Conditions for Liability for payment of Advance Tax
Computation of Advance Tax
Computation of Advance Tax by the Assessee himself
Or by the Assessing Officer
Due Dates of Installments for payment of Advance Tax
Assessee deemed to be in default
Credit for Advance Tax

Rules
119A
It is payable in respect of all the taxable income whether recurring or
nonrecurring.
If the amount of estimated tax payable is Rs.10,000 or more, it is obligatory
to pay advance tax.
It is based on PAYE i.e. Pay As You Earn.
If the amount of estimated tax payable is less than Rs.10,000, Advance Tax
is not payable. Section 208
In case of Resident Senior Citizen, Advance Tax is not payable. Section
207(2)
Assessees covered by Presumptive Tax like Section 44AD, 44AE are not
required to pay tax in advance
However, Assessees liable to pay MAT are required to pay Tax in advance
even if they estimate loss. Section 115JB
Sec. 208
Calculation of Advance Tax
If calculated by the assessee
Under Sections 210(1), 210(2) or Sec.210 (6)
1. Assessee should estimate his income for the current year.
2. Calculate the income tax applying current year rates.
The assessee must revise his income if necessary at the time of payment
of each installment and

adjust the amount of each remaining installment accordingly.

Calculation of Advance Tax
If calculated by the Assessing Officer
Under Sections 210(3)
1. Assessing Officer should estimate assessee's income for the Current year
(i)
Taking income as assessed by him as per the latest regular
assessment
order
(ii)
Income as per the latest return filed by the assessee.
Whichever is higher.
2. Calculate the income tax applying current year rates.
If the return is filed subsequently or the regular assessment is done
subsequently, the assessing officer can amend his order.
Calculation of Advance Tax
1. Estimate the Current Years Income. This will include incomes under all
the Heads. Even exempted income like Agricultural Income is also
included for rate purposes. Income of other persons clubbed in the
hands of the Assessee should also be included.
In short, it is calculated in the same way as the normal income and
normal tax done at the end of the previous year except that the
income is estimated.
2. Compute Tax on such estimated income.
3. Reduce the tax by MAT Credits (only in case of Companies).
4. Reduce the tax by AMT Credit.
5. Add Surcharge (only in case of Companies).
6. Add Education Cess + SHEC. (in case of all the Assessees)
7. Deduct if any Relief is available under Sections 89,90,90A and 91.
8. Estimate Tax Deducted at Source and Tax Collected at Source. This
should be reduced from the estimated tax payable.
9. If the balance amount of tax is less than Rs.10,000, no advance tax
payable. If the balance amount of tax is Rs.10,000 or more, advance
tax is payable.
10.
Assessee should pay Advance Tax in installments on or before
due date as specified in Section 211.
11.
Care should be taken to see that each installment represents
specified percentage of the entire amount to be paid by way of
Advance Tax. The percentages are specified in Section 211.
12.
Before every due date of payment of Installment of Advance
Tax, the Assessee can revise his estimate and adjust the amount of
next installment/s accordingly.
13.
If nonrecurring income like Capital Gain arises during any part of
the year, tax on such transaction should also be paid in the remaining
installments. If such transaction occurs after all the installments have

been paid i.e. after 15th March, tax on such transaction can be paid on
or before 31st March.
14.
If any installment falls short of the amount required to be paid,
interest will be chargeable for short payment of Advance Tax under
Section 234C.
15.
However, interest will not be chargeable if the shortfall occurs
because of the transactions mentioned in 13.
16.
The Actual Income and hence actual Income Tax payable will be
known only at the end of the previous year. There can be difference
between (Estimated Income), and Estimated Tax and (Actual Income),
and Actual Tax. But the difference between the Actual Tax and
Estimated Tax should not exceed 10% of assessed tax. It means if the
assessed tax is Rs.50,000, Assessee should have paid advance tax of
not less than Rs.45,000. In such case, no interest will be chargeable
for the shortfall.
17.
Excess amount of Advance Tax shall be refunded with interest
when Assessment Order is passed.
Amount of Advance Tax
In case of Companies, advance tax is payable in 4 installments.
In all other cases, it is payable in 3 installments.
Companies
Due date
On or before
June
On or before
September

15th

Not less than 15% of the advance tax

15th

Not less than 45% of the advance tax

as reduced by the amount paid on first
installment
Not less than 75% of the advance tax
as reduced by the amount paid on first
installment
and Second Installment
Whole of the amount of the advance tax
as reduced by the amount paid on first
installment
and Second Installment
and Third Installment

On or before
December

15th

On or before
March

15th

Others
Due date
On or before
September
On or before
December

15th

Not less than 30% of the advance tax

15th

Not less than 60% of the advance tax

as reduced by the amount paid on first
installment

15th

On or before
March

Whole of the amount of the advance tax

as reduced by the amount paid on first
installment
and Second Installment

In short,
Due date
On or before
On or before
September
On or before
December
On or before

th

15 June
15th
15th
15th March

Corporate assessees
15%
45%

Non-corporate assessees
30%

75%

60%

100%

100%

The above percentages refer to amount of tax payable in advance

calculated as under:
Estimated current years income
Estimated tax liability thereon
Less: Estimated tax deducted at source for the year
Estimated tax collected at source for the year
Less: amount of advance tax already paid on earlier installments
Any amount paid by way of advance tax on or before 31st March of the
relevant year is also treated as Tax paid in Advance.
If the Assessing Officer has issued notice under section 210(3) or 210(4),
the amount of tax should be paid on or before due date.
WHO SHOULD PAY TAX IN ADVANCE
Any person who is liable to pay tax of Rs. 10,000 or more. i.e. estimated tax
liability for the current year less tax deducted or collected at source should
exceed Rs.10,000.
Example 1. C is employed with B Limited for a salary of Rs.50,000 per
month. Total amount of deduction under Section 80C is
Rs.1,00,000. His tax liability is calculated at Rs.30,000. His
employer deducts tax of Rs.30,000 at source out of his salary.
Though B is liable to pay tax of more than Rs.10,000, he is not
required to pay any advance tax. Because balance tax payable
is zero. You may say that TDS is monthly payment of tax in
advance.
2.

Ds annual income is
Salary
Rs.7,00,000
Tax liability
Rs. 50,000
Other incomes
Rs. 25,000
Tax liability
Rs. 5,000

No liability to pay tax if the employer deducts tax of Rs.50,000

at source from his salary. D can pay tax of Rs.%,000 on other
income at the time of filing the return as self-assessment tax.
But if his other incomes are Rs.90,000 and tax liability is thereon
is say, Rs.18,000 then D is liable to pay advance tax of
Rs.18,000.
3.

A public limited company estimated its income for the year

Rs.10,00,00,000. The tax liability is worked out
Rs.3,00,00,000. Tax at source estimated for the year
Rs.2,00,00,000. The company will have to pay advance tax
Rs.1,00,00,000.

at
at
is
of

4. Section 115JB
HOW TO CALCULATE ADVANCE TAX?
Person liable to pay advance tax should estimate his tax liability on the
basis of the current years-estimated income.
While computing current years income he has to take all the nonrecurring
income also into account. The tax liability on the estimated income is
worked out at the rates in force in the relevant year. Deduction, Rebate etc.
has to be taken into account. The tax liability should be further reduced by
the amount of TDS and TCS.
Balance amount is the total amount payable in advance.
The amount of tax payable in advance is to be paid in installments. Each
installment is a fixed percentage of total amount payable in advance. Each
installment has to be paid on or before due date. Delay in payment even by
one day attracts interest charges. (See section 234C).
As the income for the year cannot be estimated accurately, at the time of
making payment of subsequent installment, income has to be reworked, tax
liability has to be re-computed and accordingly the amount of installment
can be enhanced or reduced.
Example:

Company has estimated its income for the year 2014 -15 at
Rs.20,00,000 and tax liability @ 30% at Rs.6,00,000.
Accordingly the first installment payable on 15.06. 2014 works
out to be Rs.90,000. However at the time of paying second
installment, Company revised its earlier estimate of income and
estimated that its income for the next year would be
Rs.18,00,000. The estimated tax liability is Rs.5,40,000. The
amount payable on second installment is worked out as under:
Total estimated tax liability for the year
Rs.5,40,000
Amount payable on second installment
45% of Rs.5,40,000
2,43,000
Amount already paid on first installment
90,000
Amount payable on second installment
Rs. 1,53,000
Company will have to pay advance tax of Rs.1,53,000 on or
before 15th September, 2014.

Further assume that Company after preparing half yearly

financial statements, revised its estimated total income for the
year to Rs.25,00,000 before 15th December. Accordingly, the
estimated tax liability works out to Rs. 7,50,000. Therefore the
amount payable on third installment (due on or before 15th
December, 2014 is worked our as under:
Rs.
Total estimated tax liability for the year
7,50,000
Amount payable on third installment
75% of Rs.7,50,000
5,62,500
Amount already paid on first and second installments
2,43,000
Amount payable on second installment
3,19,500
Company will have to pay advance tax of Rs. 3,19,500 on or
before 15th December 2014.
Assessing Officer can estimate current years income on the
basis of
Last return
Or Last assessment made whichever is higher.
Accordingly tax is calculated.
If return is subsequently filed or regular assessment is subsequently done,
he may compute the tax liability on the basis of such last return or
assessment order and tax will be calculated accordingly.
Section 210(3)
Assessing Officer
On the basis of last regular assessment
is of the opinion that the person is liable to pay advance tax
may require that person to pay advance tax
Assessing Officer should pass an order in writing and issue notice under
section 156 specifying the amount of installments to be paid
Such order should be passed before the month of February of the relevant
year.
Section 210(4)
If the assessee files return of income subsequently or if the Assessing
Officer passes any regular Assessment order Assessing Officer may revise
his above order.
If the person has not paid any advance tax he can pay on the receipt of the
notice.
If he has already paid advance tax but Assessing Officer may require him to
pay more/higher amount he can pay the amount before last installment.

If the person does not agree with the above order, he can send intimation to
the Assessing Officer in the Form no.28A specifying the estimated income
and amount of estimated tax and pay tax accordingly.
If however, any person is served with an order under section 210(3) or
section 210(4) or who has sent an intimation to Assessing Officer under
section 210(5), estimates his current income exceeding income stated in
the order or intimation, he can pay the whole or any part of the tax on or
before due date of last installment.
ADVANCE TAX
Usually tax liability is paid only when the Income Tax Authorities determine
(assess) income and tax thereon. This is done in the subsequent year/s of
earning the income. In other words, for the income earned in the previous
year, tax is paid in subsequent year/s.
Advance tax means payment of the tax liability before it is actually
determined or assessed. It is to be paid during the financial year (i.e.
previous year) during which the income is earned.
It is based on the principle of PAYE Pay As You Earn.
However one cannot exactly determine his tax liability unless the year is
over. But the Income Tax Act requires the person to estimate his tax
liability for the year and to pay tax accordingly.
And such estimated tax liability should not be less than 90% of the actual
tax liability as may be finally determined. i.e. he should not underestimate
his tax liability by more than 10%. If he does so, he will have to pay interest
under section 234B @ 2% p.m. (1.5% p.m.p.m. with effect from 01.06.1999,
1.25% p.m.p.m. with effect from ) on the entire amount of difference
between actual tax liability and the amount of advance tax paid by him.
Interest will be calculated from 1 st April of the relevant Assessment year to
the date of the assessment order [under section 143(1) or 143(3)].
However the assessee can pay the amount of interest at the time of filing
the return.
Example: A has paid tax in advance of Rs.7, 000.
On assessment, his tax liability was assessed at Rs.10, 000.
He has to pay interest under section 234B. @ 2% p.m. (now 1.5%)
on Rs.3, 000
If he files an appeal and as a result, his tax liability is reduced
toRs.7,500 then he will not be liable to pay interest under section
234B [as the difference between the advance tax paid by him and
actual tax liability is less than 10%.] Interest paid earlier before
filing appeal will be refunded.
The advance tax is payable in installments (4 installments in case of the
companies and 3 in case of other assessees). The amount of installment to
be paid is certain percentages of the total amount to be paid in advance.
The Act also requires that these installments to be paid be certain dates.
The entire tax liability is to be paid by 31 ST March [or by the end of the
relevant previous year]. If any person fails to pay advance tax, he is liable to
pay interest under section 234B @ 2% p.m. (1.5% p.m.p.m. with effect from

01.06.1999) on the entire amount of tax liability as may be finally

determined.
Interest will be calculated from 1 st April of the relevant Assessment year to
the date of passing assessment order.
Advance Tax in respect of Capital Gain or Casual and/or Non-recurring
Incomes
There are some Incomes which cannot be estimated. Examples are Winning
from Lotteries, Racehorses etc. Similarly income by way of Capital Gains is
also not predictable. In such cases, if there is any such income arises at any
time during the previous year, it has to be taken into account only for the
remaining amount of advance tax. No interest will be chargeable in respect
of shortfall in advance tax in earlier installments.
Example:B has estimated his total income for the previous year 2014 -15 as
Rs.8,00,000. The estimated tax liability is calculated as
Rs.2,00,000. He has to pay this tax liability in advance as under:
1st Installment on or before 15th June 30%
Rs.60,000
2nd Installment on or before 15th September 30%
Rs.60,000
rd
th
3 Final Installment on or before 15 December 40%
Rs.80,000
Suppose after paying first installment of Rs.60,000, B won a prize
at Race horse for Rs.50,000 on 1 st August, 2011. Tax Liability
thereon is Rs.15,000. B now has to pay advance tax as under:
1st Installment on or before 15th June 30%
(Paid)
Rs.60,000
2nd Installment on or before 15th September 30%
Rs.69,000
3rd Final Installment on or before 15th December 40%
Rs.86,000
Rs.2,15,000
Calculation of 2nd Installment
Total Tax liability after winning Horse Race 2,00,000 + 15,000 =
2,15,000 advance tax @ 60% of Rs.2,15,000
= 1,29,000 amount already paid on first installment Rs.
= 60,000
Balance amount payable on 2nd Installment
69,000
Calculation of 3nd Installment
Total Tax liability after winning Horse Race 2,00,000 + 15,000 =
2,15,000 advance tax @ 100% of Rs.2,15,000
= 2,15,000 amount already paid on earlier installment
Rs.
= 1,29,000

Balance amount payable on 2nd Installment

86,000