CA SHREY RATHI ADVANCE TAX 14.

BARACK OBAMA

CHAPTER 14
ADVANCE TAX

"If you run you stand a chance of

losing, but if you don’t run you’ve
already lost”

SCOPE OF THIS CHAPTER

❖ Understanding the concept of advance tax.
❖ Determining the person liable to pay advance tax.
❖ Computation of advance tax by assessee / officer & deposit by due dates.
❖ Computation of interest on late deposit of advance tax u/s 234B & 234C.

INTRODUCTION

Liability for payment of advance tax [Section 207]: It is a method of collection of tax by the Central Government in the
form of pre-paid taxes. It is also known as ‘Pay as you Earn’ scheme i.e. the assessee is required to pay tax during the
previous year itself, though such income is chargeable to tax during the assessment year. In simple words, it is a tax
payable on current income in instalments during the previous year.

OBLIGATION TO PAY ADVANCE TAX [SECTION 208]

Advance tax shall be payable only when the amount of such advance tax payable by the assessee during that year is ₹
10,000 or more.

Sir…my father (60 years) have a tax

liability of more than ₹ 10,000 on his
HP income but I have never seen him Yes, A resident senior citizen individual no
paying advance tax. Is he correct? income u/h PGBP is not liable to pay
advance tax.
 CA SHREY RATHI ADVANCE TAX 14.2

COMPUTATION AND DUE DATES FOR PAYMENT OF ADVANCE TAX [SECTION 209]

1. COMPUTATION BY THE ASSESSEE

The amount of advance tax payable by an assessee on the estimated current income shall be computed as under:

Step 1: Estimate the total income of the financial year

Step 2: Compute tax on total income (including surcharge if applicable &

Health & Education Cess @ 4%)

Step 3: Less: Any relief u/s 89 or TDS/TCS or AMT

Step 4: Step 2 Minus Step 3 is Advance Tax Payable

➢ Total income means estimate of income likely to be earned under five heads of income minus brought forward losses
minus deductions u/s 80C to 80U.

Tax deductible but not deducted shall not be deducted. Only if tax has actually been deducted at source, the same can
be reduced for computing advance tax liability of the payee.

2. COMPUTATION BY THE ASSESSING OFFICER

The assessing officer may determine advance tax on the basis of income declared by assessee in past year’s return or
income computed by him in recent year whichever is higher and pass an order u/s 210(3) requiring the assessee to pay
advance tax. The order shall be passed at any time during the financial year but not later than the last day of February.
He shall state the different instalments in which the advance tax should be paid.
The assessee can claim that his advance tax is less or higher than the amount computed by the assessing officer. If the
officer is satisfied, he can revise his order u/s 210(4) and then the assessee will have to pay advance tax accordingly.

For the purpose of advance tax, estimated agricultural income of the relevant financial year shall also be included for
rate purposes.

Q 1: The assessee provides you with the following information, decide whether Mr. Kumar (aged 39 years) needs to pay
advance tax or not:
(₹)
1. Estimated income from PGBP 4,60,000
2. Estimated interest income 70,000
3. Deposit in NSC 20,000
4. TDS 6,000
CA SHREY RATHI ADVANCE TAX 14.3

Sol 1: Determining whether the assessee needs to pay advance tax or not:
Particulars (₹)
Income from PGBP 4,60,000
Income from other sources: Interest 70,000
Gross Total Income 5,30,000
Less: Deductions u/s 80C: Deposit in NSC 20,000
Total Income 5,10,000
Tax liability on ₹ 5,10,000 14,500
Add: Health & Education Cess @ 4% 580
15,080
Less: Tax deducted at source 6,000
Final tax liability 9,080
As final tax liability of Mr. Kumar is ₹ 9,080 (i.e. less than ₹ 10,000), he is not liable to follow provisions relating to advance
tax.

INSTALMENTS OF ADVANCE TAX AND DUE DATES [SECTION 211]

1. ALL ASSESSEES (OTHER THAN ASSESSEE COMPUTING INCOME ON PRESUMPTIVE BASIS U/S 44AD & 44ADA)

Due Date of Instalments Amount payable

On or before 15th June of the current year 15% of advance tax liability
On or before 15th September of the current year 45% of advance tax liability
On or before 15th December of the current year 75% of advance tax liability
On or before 15th March of the current year 100% of advance tax liability

2. ASSESSEE COMPUTING INCOME ON PRESUMPTIVE BASIS U/S 44AD & 44ADA: An assessee following presumptive
income basis shall be required to pay advance tax of the whole amount in one instalment on or before 15th March of
the financial year.

Notes:
i) Although the last date of payment of advance tax is 15th March, but any amount paid by way of advance tax on or
before 31st March shall also be treated as Advance Tax paid for that financial year. The assessee will however be liable
to pay interest on the late payment.
ii) If the last day of payment of any instalment of advance tax is a day on which the receiving bank is closed, the assessee
can make payment on the next immediately following working day. In such cases, he will not be liable to pay interest
u/s 234B and 234C.

Q 2: Mr. Karan is following presumptive income basis u/s 44AD. He will be liable to pay 100% advance tax liability on:
(a) 31st March of the F/Y (c) 15th December of the F/Y
(b) 15th September of the F/Y (d) 15th March of the F/Y [Ans: (d)]

Q 3: Mr. Ajay (aged 69 years) is a professional. His receipts for the F/Y 2022-23 are ₹ 56 lakhs. His income from profession
is ₹ 8,80,000. He wishes to follow old regime. The amount of advance tax to be deposited by the 2nd instalment shall be:
(a) ₹ 41,418 (c) ₹ 26,832
(b) ₹ 40,248 (d) ₹ 67,080 [Ans: (b)]
CA SHREY RATHI ADVANCE TAX 14.4

INTEREST FOR NON-PAYMENT OR SHORT PAYMENT OF ADVANCE TAX [SECTION

234B]

If advance tax is not paid or the amount paid is less than 90% of the assessed tax, then the assessee shall be liable to pay
interest @ 1% p.m. or part of the month from 1st April following the financial year till the date of payment.
Interest should be calculated on the amount of assessed advance tax minus advance tax paid.

Q 4: Arvind (aged 64 years) has an income from salary of ₹ 7,80,000 and a loss of ₹ 1,00,000 from House property. He paid
his entire tax liability on 25th July 2023. He will have to pay interest u/s 234B of:
(a) Nil (c) ₹ 2,018
(b) ₹ 1,940 (d) ₹ 2,850 [Ans: (a)]

INTEREST FOR DEFERMENT OF TAX [SECTION 234C]

Interest is payable u/s 234C if an assessee (other than an assessee computing income on presumptive basis u/s 44AD &
44ADA) has not paid advance tax or underestimated advance tax or there is a deferment of advance tax beyond the due
dates.

The interest liability would be 1% p.m. for a period of 3 months for every non-payment or deferment. But in case of last
instalment of 15th March, the interest liability would be 1% for 1 month. Interest should be calculated on the amount of
advance tax payable up to that date minus actual tax paid.

RELIEF: If the advance tax paid in case of 1st instalment is 12% or more and in case of 2nd instalment is 36% or more,
then no interest under this section shall be payable by the assessee.

Interest u/s 234C for assessee computing income on presumptive basis u/s 44AD & 44ADA: Interest shall be 1% for 1
month on the amount of unpaid advance tax.

Sir…in how many installments will a

transport operator following
presumptive income u/s 44AE have to
pay advance tax? A transport operator falling presumptive
income u/s 44AE has to pay advance tax in 4
installments.

Q 5: Mr. Abhimanyu is a professional following presumptive income u/s 44ADA. His professional receipts were ₹
23,00,000 during the F/Y 2022-23. He deposited the requisite amount of tax on 23rd May 2023. Interest u/s 234B & 234C
shall be:
(a) 234B – ₹ 1,638; 234C – ₹ 3,276 (c) 234B – ₹ 10,452; 234C – ₹ 5,226
(b) 234B – ₹ 3,276; 234C – ₹ 3,276 (d) 234B – ₹ 3,276; 234C – ₹ 1,638 [Ans: (d)]
CA SHREY RATHI ADVANCE TAX 14.5

Q 6: Calculate the interest payable by Mr. Manoj u/s 234B & 234C if he paid his entire tax liability of ₹ 16,000 of the P/Y
2022-23 on 11.11.2023. He did not pay any amount before that.

Sol 6: Computation of interest u/s 234B & 234C for Mr. Manoj:
234B: 1st April 2023 – 11th November 2023:
₹ 16,000 x 1% x 8 months = ₹ 1,280
234C:
15th June 2022 = ₹ 16,000 x 15% = ₹ 2,400 x 1% x 3 months =₹ 72
15th September 2022 = ₹ 16,000 x 45% = ₹ 7,200 x 1% x 3 months =₹ 216
15th December 2022 = ₹ 16,000 x 75% = ₹ 12,000 x 1% x 3 months =₹ 360
15th March 2023 = ₹ 16,000 x 100% = ₹ 16,000 x 1% x 1 month =₹ 160
₹ 808

PAYMENT OF ADVANCE TAX IN CASE OF CAPITAL GAINS / CASUAL INCOME ETC.

[PROVISO TO SECTION 234C]

Advance tax is payable on total income which includes capital gains, lotteries etc. But it is practically impossible to
estimate capital gains, income from lotteries, PGBP income arising for the first time.
Therefore, in such cases, it is provided that if any such income arises after the due date of any instalment, then the entire
amount of tax payable on such income should be paid in the remaining instalments of advance tax which are due.
But if such income is earned after 15th March, the entire tax should be paid by 31st March of the relevant financial year. If
the entire amount of tax is so paid, then no interest on late payment shall be charged.

Q 7: The estimated business income of the AB & Associates, a partnership firm is ₹ 2,50,000. The firm earned a long-term
capital gains u/s 112 of ₹ 1,20,000 on 7th August 2022. Compute the advance tax payable in instalments by the partnership
firm assuming ₹ 22,000 has been deducted at source during the P/Y 2022-23.

Sol 7: Computation of different instalments of advance tax payable:

The partnership firm estimated ₹ 2,50,000 as its total income in the beginning of the year as estimation of LTCG u/s 112 of
₹ 1,20,000 on 07-08-2022 is practically not feasible in the beginning of the year. It can only be dealt when such capital gain
actually arises.
Tax on ₹ 2,50,000 @ 30% = ₹ 75,000
Add: Health & Educational Cess @ 4% = ₹ 3,000
= ₹ 78,000
Less: TDS = ₹ 22,000
Tax liability = ₹ 56,000
1st instalment on 15th June, 2022 @ 20% of tax liability (₹ 56,000 x 15%) = ₹ 8,400

Revised tax liability ability after happening of LTCG u/s 112 of ₹ 1,20,000 on 07-08-2022:
Tax on ₹ 2,50,000 @ 30% = ₹ 75,000
Tax on ₹ 1,20,000 @ 20% = ₹ 24,000
= ₹ 99,000
Add: Health & Education cess @ 4% = ₹ 3,960
= ₹ 1,02,960
Less: TDS = ₹ 22,000
Tax liability = ₹ 80,960
2nd instalment on 15th September, 2022 @ 45% of tax liability = ₹ 80,960 x 45% = ₹ 36,432
3rd instalment on 15th December 2022 @ 75% of revised tax liability = ₹ 80,960 x 75% = ₹ 60,720
4th instalment on 15 March 2023 @ 100% tax liability = ₹ 80,960 x 100% = ₹ 80,960.
CA SHREY RATHI ADVANCE TAX 14.6

ROUNDING OFF FOR CALCULATION OF INTEREST [RULE 119A]

As per rule 119A, the principal amount shall be rounded off in multiples of ₹ 100 and or for this purpose any fraction of ₹
100 shall be ignored. For e.g. ₹ 52,489 shall be rounded off as ₹ 52,400.

QUICK REVISION BEFORE EXAMS

Section Particulars
207 Pay as you earn scheme on estimated income of an assessee during the current year.
208 Where the estimated tax liability is ₹ 10,000 or more, the provisions of advance tax shall apply. However, a
resident senior citizen having no income u/h PGBP is not liable to pay advance tax.
209 Computation of advance tax:
Step 1: Estimate total income
Step 2: Compute tax liability on estimated income (incl. surcharge & HEC)
Step 3: Less: TDS / TCS / Relief u/s 89 / AMT credit
Step 4: Step 2 – Step 3 is advance tax payable
211 Due dates for payment of advance tax
1. All assessees (other than 44AD & 44ADA):
Due Date of Instalments Amount payable
th
On or before 15 June of the P/Y 15% of advance tax liability
On or before 15th September of the P/Y 45% of advance tax liability
On or before 15th December of the P/Y 75% of advance tax liability
th
On or before 15 March of the P/Y 100% of advance tax liability
2. Assessee opting for 44AD & 44ADA: One installment on or before 15th March – 100% of advance tax
liability.
234B Where advance tax paid is < 90% of assessed tax, then interest @ 1% p.m. or part of the month from 1st April of
A/Y till the date of payment.
234C Where there is a delay in payment of advance tax installment beyond the due date, interest @ 3% for every
delay shall be levied. But in case of last installment of 15th March, interest @ 1% shall be levied.
However, if the advance tax paid in case of 1st instalment ≥ 12% in case of 2nd instalment ≥ 36%, then no
interest u/s 234C
Assessee following 44AD & 44ADA: Interest @ 1% on unpaid advance tax shall be levied.
Proviso Where a non-estimable income such as lottery, LTCG etc. arises after any due date, then the revised tax payable
to 234C should be paid in the remaining instalments of advance tax which are due. If paid so, no interest u/s 234C shall
apply.

NOTES FOR STUDENTS

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………