Advance Payment Of Tax

Advance Payment of tax is another method of collection of tax by the Central Government in the Form of ‘Prepaid Taxes’.  Such advance tax is in addition to deduction of tax at source or collection of tax at source.  Scheme of advance payment of tax is also known as ‘pay as you earn’ scheme i.e., the assessee is required to pay tax during the course of earning of income in the previous year itself, though such income in chargeable to tax during the assessment year.  Advance tax is payable on current income in installments during the previous year.

Liability for payment of Advance tax [Section 207]

As per the various provisions [Section 208 to 219] relating to Advance tax, tax shall be payable in advance during the financial year in respect of the total income of the assessee which would be chargeable to tax during the assessment year immediately following the financial year.  Such income shall be referred to as ‘Current income’.  We know that income earned during the financial year 2005-06 shall be charged to tax in the assessment year 2006-07.  but the assessee in required to pay tax, in advance, on the taxable income of financial year 2005-06 during the financial year 2005-06 itself, if certain conditions are fulfilled.

Computation and payment of Advance Tax where the calculation is made by the assessee himself [Section 209]

Procedure: Advance tax payable by an assessee in the financial year on his own accord shall be computed as follows:

Step 1: Estimation of Income: Current income of the financial year for which the advance tax is payable should be estimated.

Step 2: Computation of tax: The tax payable on estimated income at the rates applicable for the financial year should be computed.

Step 3: Adjustment of Rebate: From the tax computed in Step 2, rebate if any likely to be allowed under Section 88E should be reduced.

Step 4: Surcharge on tax: On the net tax computed in step 3, Surcharge as applicable should be added and relief, if any, under section 89 should be allowed.

Step 5: Education cess @ 2% of tax and Surcharge is to be added.

Step 6: Deduction of tax at source: Tax deductible at source as per relevant provisions should be deducted from the tax payable before payment of net amount of tax.

Step 7: Advance tax payable: The balance amount is the advance tax payable and if it happens to be more than Rs. 5,000, it will be payable in certain instalments as provided in Section 211.

Advance Tax Payable

Tax on current income at the rate in force during the financial year will be calculated by the Assessing Officer.  From such tax calculated, the amount of income-tax which would be deductible or collectible at source during the said financial year shall be reduced and the amount of income-tax as so reduced shall be the advance tax payable.

Revision of order for payment of Advance Tax [Section 210(4)]: If, after making the above order, by the Assessing Officer, but before 1^st March, return of income is furnished by the assessee or a regular assessment of the assessee is made in respect of any later year, for any higher figure the Assessing officer may make an amended/revised order to pay advance tax.  On receipt of the revised order, the assessee will have to pay advance tax accordingly.