Advance Tax

Tax-payers are required to pay advance tax on their I which they expect to earn during the current year. For example financial year 2006-07 (relevant to assessment year 2007-08) a< tax is payable in installments during 2006-07 itself. The advance tax so paid is adjusted against the total tax assessed for that assessment year, i.e. AY. 2007-08

Who is Liable to Pay Advance Tax?

1. All persons including salaried employees' and pension whose case advance tax payable during a financial year is Rs or more, are required to pay advance tax.

'Advance Tax' for this purpose means: Total tax on the estimated income for current financial year - TDS/TCS, which is required expected to be deducted/collected, during the year, if any.

Thus, if the tax payable (after all deductions, rebates and T a financial year is Rs. 5000, or less, no advance tax is payable and such tax can be paid on self-assessment before filing the return

2. Persons who have received an order u/s 210(3) in Form N( pay an amount by way of advance tax, should deposit such are the installments as specified in the order. (Such an order I served upto the last day of February of the financial year).

If that person estimates his income at a higher amount th specified in the order u/s 210(3), then he should pay advanCE accordance with such higher estimate.

However, if he estimates his income at a lower amount, then he should send an estimate of such lower income in Form 28-A, before e next installment falls due and deposit the remaining installments advance tax accordingly. [ Sec. 210(4) & (5)]

How to Calculate Advance Tax?

1. Advance tax is payable (in installments, as above) on total income (estimated for the financial year) including capital gains and casual incomes such as winnings from lotteries, races, etc. and after adjusting expenses or losses.

2. Therefore, income for the current year should be estimated as precisely and correctly as possible.

3. If any capital gain or casual income arises subsequent to payment of an installment, the remaining installments of advance tax should be accordingly revised. If any such income arises after 15th March, tax should be deposited on such incomes latest by 31st March of the financial year.

4. Remember, non/short payment and deferment of advance tax attracts penal interest. Refer illustrations of this chapter.
 

Exemption from Payment of Advance Tax to Resident Senior Citizen

As per section 208 every person whose estimated tax liability for the year exceeds Rs. 10,000, shall pay his tax in advance in the form of “advance tax”. Thus, any taxpayer whose estimated tax liability for the year exceeds Rs. 10,000 has to pay his tax in advance by the due dates prescribed in this regard. However, as per section 207, a resident senior citizen (i.e., an individual of the age of 60 years or above) not having any income from business or profession is not liable to pay advance tax.

In other words, if a person satisfies the following conditions, he will not be liable to pay advance tax:

1) He is an individual
2) He is resident in India as per the Income-tax Act
3) He is of the age of 60 years or above at any time during the year
4) He is not having any income chargeable to tax under the head “Profits and gains of business or profession”

Illustration
Mr. Syiem (resident and age 65 years) is a retired person, earning rental income of Rs. 40,000 per month. Apart from rental income, he does not have any other source of income. Will he be liable to pay advance tax?
** Any taxpayer whose estimated tax liability for the year exceeds Rs. 10,000 has to pay his tax in advance by the due dates prescribed in this regard. However, if a person satisfies the following conditions, he will not be liable to pay advance tax:
1) He is an individual
2) He is resident in India as per the Income-tax Act
3) He is of the age of 60 years or above
4) He is not having any income chargeable to tax under the head “Profits and gains of business or profession”
In this case Mr. Syiem is a resident as per Income-tax Law. His age is 65 years and he is not having any income chargeable to tax under the head “Profits and gains of business or profession”. Thus, he satisfies all the above conditions and, hence, he will not be liable to pay advance tax.

Illustration:
Mrs. Debolina (resident and age 56 years) is a retired person, earning rental income of Rs. 40,000 per month. Apart from rental income he does not have any other source of income. Will he be liable to pay advance tax?
** Any taxpayer whose estimated tax liability for the year exceeds Rs. 10,000 has to pay tax in advance by the due dates prescribed in this regard. However, if a person satisfies the following conditions, then he will not be liable to pay advance tax:
1) He is an individual
2) He is resident in India as per the Income-tax Act
3) He is of the age of 60 years or above
4) He is not having any income chargeable to tax under the head “Profits and gains of business or profession”

In this case Mrs. Debolina is a resident as per Income-tax Law. His age is 56 years and he is not having income chargeable to tax under the head “Profits and gains of business or profession”. He satisfies all the conditions except the age criteria of 60 years and, hence, he will be liable to pay advance tax. In other words, Mrs. Debolina is not a senior citizen as per the Income-tax Law and, hence, he is not exempted from payment of advance tax.

Illustration
Mr. James (resident and age 61 years ) is a retired person earning rental income of Rs. 40,000 per month. After retirement from his job, he started his own business of provision shop. Will he be liable to pay advance tax?
** Any taxpayer whose estimated tax liability for the year exceeds Rs. 10,000 has to pay his tax in advance by the due dates prescribed in this regard. However, if a person satisfies the following conditions, then he will not be liable to pay advance tax:
1) He is an individual,
2) He is resident in India as per the Income-tax Act
3) He is of the age of 60 years or above
4) He is not having any income chargeable to tax under the head “Profits and gains of business or profession”

In this case Mr. James is a resident as per Income-tax Law. His age is 61 years and he is having income chargeable to tax under the head “Profits and gains of business or profession”. He satisfies all the conditions except the business/profession income criteria. Hence, he will be liable to pay advance tax. In other words, Mr. James will be liable to pay advance tax because he is having income chargeable to tax under the head “Profits and gains of business or profession”.

Illustration:
Mr. Aaban (a non-resident and age 63 years) is a retired person, earning rental income of Rs. 40,000 per month from a property located in Delhi. He is residing in Canada. Apart from rental income, he does not have any other source of income. Will he be liable to pay advance tax in India?
** Any taxpayer whose estimated tax liability for the year exceeds Rs. 10,000 has to pay his tax in advance by the due dates prescribed in this regard. However, if a person satisfies the following conditions, he will not be liable to pay advance tax:
1) He is an individual
2) He is resident in India as per the Income-tax Act
3) He is of the age of 60 years or above
4) He is not having any income chargeable to tax under the head “Profits and gains of business or profession”

The exemption from payment of advance tax is available to a resident individual who is of the age of 60 years or above and who does not have income chargeable to tax under the head “Profits and gains of business or profession”. In this case, Mr. Aaban is a nonresident as per Income-tax Law, and, hence, he cannot claim the benefit of exemption from payment of advance tax. In other words, Mr. Aaban will be liable to pay advance tax.

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