Payment of Advance Tax and Refund of Tax

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Payment of Advance Tax is another method of collection of tax by the Central Govt. in the form of Pre-paid Taxes like TDS & TCS U/s 207-211, 217 & 219. Such advance tax is in addition to deduction of tax at source (TDS) or collection of tax at source (TCS). Scheme of advance payment of tax is also known as ‘Pay as you Earn’ scheme i.e., an assessee is required to pay tax in a particular financial year, preceding the assessment year, on the basis of his estimated income. This would mean that though the income earned during the previous year 2019-20 is taxable in the assessment year 2020-21, tax on such income is payable during the financial year 2019-20 under the scheme of advance payment of tax.

Payment of Advance Tax
Payment of Advance Tax

Table of Contents

1. Advance Tax Payable on Current Income [Section 207(1)]

As per the various provisions of advance tax [sections 208 to 219], 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 for the assessment year immediately following that financial year. Such total income shall be referred to as “Current income” in this Chapter. We know that income earned during the financial year 2019-20 shall be charged to tax in the assessment year 2020-21. But the assessee is required to pay tax, in advance, on the taxable income of financial year 2019-20 during the financial year 2019-20 itself.

‘Current income’ will include all items of income. It includes capital gains (both long-term and short-term), winnings from lotteries, crossword puzzles, etc. For computation of advance tax on the current non-agricultural income, even agricultural income will be included for rate purposes, wherever as per provisions of the Income-tax Act, it is required to be so included.

2. Conditions of Liability to pay Advance Tax [Section 208]

Advance Tax, as computed in accordance with the provisions of this Chapter, shall be payable during a financial year, only when the amount of such advance tax payable by the assessee during that year is Rs.10,000 or more.

3. Senior Citizen Not required to Pay Advance Tax [Section 207(2)]

The provisions of advance tax shall not apply to an individual resident in India, who–

  1. does not have any income chargeable under the head “Profits and gains of business or profession”; and
  2. is of the age of sixty years (60 years) or more at any time during the previous year.

4. Due Dates and Instalments of Advance Tax Payable by all Assessees other than covered U/s 44AD or 44ADA [Section 211(1)(a)]

All the assessees, other than the assessee referred to in clause (b) of section 211(1) (see para (2) below), who are liable to pay the advance tax shall pay the same, in four instalments during each financial year and the due date of each instalment and the amount of such instalment shall be as specified in the Table below:

Due date of instalmentAmount payable
On or before the 15th JuneNot less than 15%, of such advance tax.
On or before the 15th SeptemberNot less than 45% of such advance tax, as reduced by the amount, if any, paid in the earlier instalment.
On or before the 15th DecemberNot less than 75% . of such advance tax, as reduced by the amount or amounts, if any, paid in the earlier instalment or instalments.
On or before the 15th MarchUpto 100% of such advance tax, as reduced by the amount or amounts, if any, paid in the earlier instalment or instalments;

Other points –

One should also keep in view the following points –

  • Where advance tax is payable by virtue of the notice of demand issued by the Assessing Officer, the whole or the appropriate part of the advance tax shall be payable in the remaining instalments.
  • Any payment of advance tax made on or before March 31 shall be treated as advance tax paid during the financial year.
  • If the last day for payment of any instalment of advance tax is a day on which the receiving bank is closed, the assessee can make the payment on the next immediately following working day, and in such case, the mandatory interest leviable under sections 234B and 234C would not be charged.

Advance Tax Payable by the Assessee covered under Section 44AD or 44ADA [Section 211(1)(b)]:

An eligible assessee in respect of an eligible business referred to in section 44AD or 44ADA shall pay the advance tax, to the extent of the whole amount of such advance tax during each financial year on or before the 15th March

5. Computation and Payment of Advance Tax made by the Assessee himself [Section 209(1)(a) and (d)]

The amount of advance tax payable by an assessee in the financial year on his own accord as per section 210(1) or 210(2) or 210(5) or section 210(6) on the estimated current income shall be computed as follows:

Step I — Estimate the current income of the financial year for which the advance tax is payable.

Step II — Compute tax on such estimated current income at the rate(s) of tax given under Part III of the First Schedule of the relevant Finance Act.

Step III — On the net tax, if any, computed at Step III, add surcharge if applicable.

Step IV — Add education cess + SHEC to the amount computed under step IV.

Step V — Allow relief, if any, under section 89, 90, 90A & 91.

Step VI — Deduct credit, if allowable, under section 115JAA (MAT credit) or 115JD (AMT credit) of the tax paid in earlier years.

Step VII — Deduct the tax deductible or collectable at source during the financial year from any income (as computed before allowing deduction admissible under the Act) which has been taken into account in computing the current income [Section 209(1)(d)].

Step VIII — The balance amount is the advance tax payable provided it is Rs. 10,000 or more. However, it will be payable in certain instalments

1. Estimated current income means estimate of income likely to be earned during the current previous year under five heads of income. Thereafter, set off brought forward losses. From such estimated gross total income deductions likely to be claimed under sections 80C to 80U will be deducted.  

2. This section makes the provision for advance tax applicable to all classes of income but provides that the advance tax shall be reduced by the amount of tax deductible or collectable at source.  

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

(A) Payment of Advance Tax by the Assessee on his Own Accord under Section 210(1):

Every person who is liable to pay advance tax under section 208 (whether or not he has been previously assessed by way of regular assessment) shall, of his own accord, pay, on or before each of the due dates specified in section 211, the appropriate percentage, specified in that section, of the advance tax on his current income, calculated in the manner laid down in section 209. See para 20.3.

Increase or Decrease of Subsequent Instalments [Section 210(2)]:

A person who pays any instalment or instalments of advance tax under sub-section (1), may increase or reduce the amount of advance tax payable in the remaining instalment or instalments to accord with his estimate of his current income and the advance tax payable thereon, and make payment of the said amount in the remaining instalment or instalments accordingly.

6. Computation and Payment of Advance Tax made by the Assessing Officer.

(A) Payment of Advance Tax in pursuance of an Order / Amended Order of Assessing Officer under Sections 210(3) and 210(4):

Although it is mandatory for the assessee to calculate and pay advance tax, the Assessing Officer may pass an order under section 210(3) or amended order under section 210(4) and issue a notice of demand under section 156 requiring the assessee to pay advance tax. Such order can be passed by Assessing Officer on the assessee, only when the following conditions are satisfied:

  1. The assessee has already been assessed by way of a regular assessment in respect of the Total Income of any previous year;
  2. Such notice can be issued whether the assessee has paid any instalment of advance tax or not;
  3. The Assessing Officer is of the opinion that such person is liable to pay advance tax;
  4. Such order can be passed at any time during the financial year, but not later than the last day of February.
  5. Such order must be made in writing.
  6. The notice of demand should specify the amount of advance tax and the instalment or instalments in which such advance tax is to be paid.

(B) Computation of Tax by Assessing Officer [Section 209(1)(b) read with section 209(2)(a)]:

The Assessing Officer, for determining the advance tax payable by the assessee under section 210(3), shall take the current income of the assessee to be the higher of the following two:

  1. The Total Income of the latest previous year in respect of which the assessee has been assessed by way of regular assessment (it will also include agricultural income of such previous year which has been taken into account for rate purposes); or
  2. The Total Income returned by the assessee for any previous year subsequent to the previous year for which regular assessment has been made (it will also include agricultural income of such previous year which has been taken into account for rate purposes).

Tax on above 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 collectable 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.

(C) Amendment of Order of Assessing Officer for payment of Advance Tax [Section 210(4)]:

If, after making the above order, by the Assessing Officer, but before 1st March,

  1. a return of income is furnished by the assessee under section 139 or in response to a notice under section 142(1), or
  2. a regular assessment of the assessee is made, in respect of a later previous year, for any higher figure,

then the Assessing Officer may amend his order and issue to such assessee a notice of demand under section 156 on the basis of income declared in such return or income so assessed (such income shall also include agricultural income which has been taken into account for rate purposes).

On receipt of the revised order, the assessee will have to pay advance tax accordingly. Such sum shall be payable at the appropriate percentages on or before the due dates specified in section 211 falling after the date of amended order.

(D) Assessee can Submit his Own Estimate if its Current Income is likely to be Lower [Section 210(5) and Rule 39]:

On receipt of the order/amended order to pay advance tax from the Assessing Officer, the assessee, if in his estimation, the advance tax payable on his current income would be less than the amount of the advance tax specified in such order/amended order, can submit his own estimate of lower current income and pay advance tax on the basis of his estimation at appropriate percentages on or before the due dates specified in section 211 falling after the date of order/amended order. In such a case, the assessee will have to send an intimation in Form No. 28A to the Assessing Officer on or before the due date of last instalment specified in section 211.

Assessee to pay Advance Tax on his Own Estimate if its Current Income is likely to be Higher [Section 210(6)]:

If the assessee estimates that current income is likely to be higher than the amount estimated by the Assessing Officer in the order/amended order or in the intimation sent by him under section 210(5), the assessee shall pay whole of such higher tax according to his own estimate on or before the due date of each instalment specified in section 211. In this case, there is no need to send an intimation in Form No. 28A to the Assessing Officer.

7. Net Agricultural Income to be taken into account for Computing Advance Tax [Section 209(2)]:

The amount of advance tax payable by an assessee in the financial year calculated by:

  1. The assessee on his own accord by estimate in current income; or
  2. The Assessing Officer in pursuance of order under section 210(3) or revised order under section 210(4).

is subject to the provisions of section 209(2), which states that the net agricultural income is to be taken in to account for the purpose of computation of advance tax.

Which year’s agricultural income is to be included in the current income for computing advance tax:

As already stated above, agricultural income forms part of current income for computing advance tax on non-agricultural income. A question which may arise is which years agricultural income is to be included? This can be discussed under the following two situations:

  1. Where the advance tax is to be paid by the assessee on the basis of his estimate of his current income: It shall be estimated agricultural income of current financial year relevant to assessment year for which advance tax is payable.
  2. Where the advance tax is payable in pursuance of an order/amended order of Assessing Officer under section 210(3) and 210(4): It shall be—
    1. that agricultural income which has been taken into account for rate purposes in respect of which the assessee has been assessed by way of regular assessment; or
    2. that agricultural income which has been taken into account for rate purposes in respect of total income returned by the assessee for any previous year subsequent to the previous year for which regular assessment has been made

8. Payment of Advance Tax in case of Capital Gains/Casual Income [Proviso to section 234C]

As already discussed, advance tax is payable on all types of income, including capital gains and winnings of lotteries, crossword puzzles, etc. However, it is not normally possible for an assessee to estimate the following incomes:

  1. the amount of capital gains; or
  2. winnings from lotteries, etc.; or
  3. income under the head “business or profession” in cases where the income accrues and arises under the said head for the first time as the business might have been started after certain due dates of payment of advance tax; or
  4. income of the nature referred to in section 115BBDA(1) i.e. the dividend received is in excess of Rs. 10,00,000.

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 (after deduction of tax at source, if any) on such capital gain or winnings from lotteries, etc. or income from business or profession or income from dividend should be paid in remaining instalments of advance tax which are due or where no such instalment is due, by 31st March of the relevant Financial Year. If the entire amount of tax payable is so paid, then no interest on late payment will be leviable.

9. Interest Payable if Advance Tax is not paid or paid less than 90% [Section 234B]

If Advance Tax is not paid or the amount of Advance Tax paid is less than 90% of the Assessed Tax, the Assessee shall be liable to pay simple interest @1% per month from first day of April following the financial year, under Section 234B.

‘Assessed Tax’ Means:  
Tax determined u/s 143(1) or on regular assessment made u/s 143(3)/144 or on first time assessment u/s 147 or u/s 153A (whichever section is applicable) 
Less:  

1. TDS/Tax collected at source
2. the amount of relief of tax allowed under sections 90 and 90A and deduction from the Indian income-tax payable, allowed under section 91, and —
3.tax credit allowed to be set off under section 115JAA/115JD from the tax on the total income.
—   —   — 
Assessed Tax 

10. Interest of Deferment of Advance Tax (Section 234C)

(1). An Assessee, (other than an Eligible Assessee in Section 44AD or Eligible Profession in Section 44ADA),

who is liable to pay advance tax under section 208 has failed to pay such tax or has made late payment of advance tax, shall pay the interest under section 234C as under—

Circumstances in which
interest is payable 
u/c 234C
Rate of interestPeriodAmount on which interest is
to be paid
(1)(2)(3)(4)
Where advance tax paid on or before June 15th is less than 12% of tax due on returned incomeSimple interest 1% p.m.Three months15% of Tax Due on Returned Income minus advance tax paid upto 15th June
Where advance tax paid on or before 15th September is less than 36% of tax due on returned incomeSimple Interest (a 1% p.m.Three months45% of Tax Due on Returned Income minus total advance
tax paid upto 15th September
Where advance tax paid on or before 15th December is less than 75% of tax due on returned incomeSimple Interest @ 1% p.m.Three months75% of Tax Due on Returned Income minus total advance
tax paid upto 15th December
Where advance tax is paid on or before 15th March is less than 100% of tax due on returned incomeSimple Interest 1% p.m.One month100% of Tax Due on Returned Income minus total advance tax paid upto 15th March

However, if the advance tax paid by the assessee on the current income, on or before the 15th day of June or the 15th day of September, is not less than 12%, or, as the case may be, 36%, of the tax due on the returned income, then, the assessee shall not be liable to pay any interest on the amount of the shortfall on those dates.

Tax Due on Returned Income:

It shall be computed as under:

Tax on Returned income

Less:
1. Tax deducted and collected at source;

2. The amount of relief of tax allowed under sections 90 and 90A and deduction from the Indian income-tax payable, allowed under section 91, and

3. Tax credit allowed to be set off under section 115JAA/115JD from the tax on the total income.  

(2). Interest payable in case of Non-payment of Advance Tax by 15th March by the Eligible Assessee in Section 44AD or Eligible Profession in Section 44ADA [Clause (b) to Section 234C(1)]

An assessee who declares profits and gains in accordance with the provisions of section 44AD (1) or section 44ADA (1), as the case may be, who is liable to pay advance tax under section 208:

  1. has failed to pay such tax or
  2. the advance tax paid by the assessee on its current income on or before the 15th day of March is less than the tax due on the returned income,

then, the assessee shall be liable to pay simple interest at the Rate of 1%, on the amount of the shortfall from the tax due on the returned income.

11. Refund of Tax (Section 237 to 241)

(1) Who can Claim Refund of Tax

Where an assessee has submitted any return of income and any refund of tax is due, such refund shall be granted by the Assessing Officer on his own. The assessee is not required to file any claim for such refund. Similarly, if any refund arises due to an order of appeal, rectification of mistakes, revision by CIT or appeal to the High Court, the refund shall be granted by the Assessing Officer himself. In this case also, the assessee is not required to file any claim for refund of tax.

Although an assessee who has submitted the return of income is not required to file Form No. 30 to claim refund but the return of income for the assessment year for which refund is due must be filed within the time limit provided under section 139.

Where assessee had claimed refund of lesser amount than that reflected in Form 26AS, he was to be permitted to make additional claim of refund.

Refund of Tax
Refund of Tax

(2). Who is entitled to Refund of Tax (Seciton 237)

If any person satisfies the Assessing Officer that the amount of tax paid by him or on his behalf or treated as paid by him, or on his behalf for any assessment year exceeds the amount which he is properly chargeable under the Income-tax Act for that year, he shall be entitled to a refund of the excess tax paid.

(3). Who can Claim Refund of Tax other than Assessee (Section 237)

Although only the assessee is entitled to claim refund, however, in the following cases the refund can be claimed by a person other than the assessee:

  1. where the income of one person is included under any provision of the Income-tax Act in the total income of any other person, the latter alone shall be entitled to a refund in respect of such income;
  2. where the value of fringe benefits provided or deemed to have been provided by one employer is included under any provisions of Chapter XII-H in the value of fringe benefits provided or deemed to have been provided by any other employer, the later alone shall be entitled to a refund under this Chapter in respect of such fringe benefits;
  3. where through death, incapacity, insolvency, liquidation or other cause, a person is unable to claim or receive any refund due to him, his legal representative or the trustee or guardian or receiver, as the case may be, shall be entitled to claim or receive such refund for the benefit of such person or his estate.

(4). Form and Period to Claim of Refund of Tax (Section 239 and Rule 41)

Every claim for refund should be made in the prescribed form i.e. Form No. 30 and it should be verified in the prescribed manner. The claim of refund should be made within one year of the last day of the relevant assessment year.

Where any part of the total income of a person making a claim for refund of tax, consists of any income from which tax has been deducted under the provisions of sections 192 to 194, 194A and 195, the claim shall be accompanied by the TDS certificates prescribed under section 203.

The delay in filing the claim may be condoned by the Assessing Officer and the claim may be disposed off according to merits, under certain circumstances.

The claim for refund may be presented by the claimant in person or through a duly authorised agent or may be sent by post.

(5). Refund of Tax on Appeal, etc. (Section 240)

Where, as a result of any order passed in appeal or other proceeding under this Act, refund of any amount becomes due to the assessee, the Assessing Officer shall, refund the amount to the assessee without his having to make any claim in that behalf.

Provided that where, by the order aforesaid—

  1. an assessment is set aside or cancelled and an order of fresh assessment is directed to be made, the refund, if any, shall become due only on the making of such fresh assessment.
  2. the assessment is annulled, the refund shall become due only of the amount, if any, of the tax paid in excess of the tax chargeable on the total income returned by the assessee.

(6). Withholding of Refund of Tax in certain cases [Section 241A]

For every assessment year commencing on or after the 1st day of April, 2017, where refund of any amount becomes due to the assessee under the provisions of sub-section (1) of section 143 and the Assessing Officer is of the opinion, having regard to the fact that a notice has been issued under subsection (2) of section 143 in respect of such return, that the grant of the refund is likely to adversely affect the revenue, he may, for reasons to be recorded in writing and with the previous approval of the Principal Commissioner or Commissioner, as the case may be, withhold the refund up to the date on which the assessment is made.

In other words, for the returns furnished for assessment year commencing on or after 1.4.2017, where refund of any amount becomes due to the assessee under section 143(1) and the Assessing Officer is of the opinion that grant of refund may adversely affect the recovery of revenue, he may, for the reasons recorded in writing and with the previous approval of the Principal Commissioner or Commissioner, withhold the refund upto the date on which the assessment is made.

(7). Set off of Refund of Tax against Tax / Demand Outstanding [Section 245]

Where under any of the provisions of the Income-tax Act, a refund is found to be due to any person, the Assessing Officer, Commissioner (Appeals) or Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under the Income-tax Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken.

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