AdvanCe Tax

Generally, tax on the income earned in the previous year is paid in the respective assessment year, but in certain cases, an
assessee may be required to pay tax during the previous year itself, as Advance tax. The scheme of advance tax is based on
the concept “Pay as you earn”. Under this scheme assessee needs to estimate its income and tax liability of the previous year
and pay tax on basis of such estimation in the previous year itself. For instance, income earned during the previous year
2021-22 is normally taxable in the assessment year 2022-23, however under the scheme of Advance tax, assessee is required
to pay tax on estimated income of previous year 2021-22 in the previous year itself.
Applicable to: All assessee irrespective of his residential status and citizenship
Scheme of Advance tax [Sec.208] Where the advance tax liability# of the assessee is ₹ 10,000 or more, the assessee
should pay such tax in the previous year itself within the due date$.
# Advance tax liability [Sec. 209]

Estimated Gross Total Income ****

Less: Deduction under chapter VIA ****
Estimated Total Income ****

Gross tax liability on Estimated Total Income ****

Less: Rebate u/s 87A **
Tax liability after Rebate ****
Add: Surcharge (if applicable) ****
Tax and surcharge payable ****
Add: Health & Education cess ****
Tax liability after cess ****
Less: Tax deducted or collected at source / other Rebate & Relief ****
Advance tax liability ****
$
Due date for payment of advance tax [Sec. 211]

An eligible assessee in respect of

an eligible business referred to in
sec. 44AD or 44ADA On or before March 15 100% of advance tax liability
On or before June 15 Upto 15% of advance tax liability
On or before September 15 Upto 45% of advance tax liability
Other Assessee On or before December 15 Upto 75% of advance tax liability
On or before March 15 Upto 100% of advance tax liability

Notes:

a. Any amount paid u/s 211 on or before 31st March of the previous year, shall be treated as advance tax paid
during the financial year.
b. Where an assessee is a senior citizen (or super senior citizen) and does not have any income chargeable under
the head “Profits and gains of business or profession”, provision of advance tax is not applicable. In other
words, senior citizen not having business income is not liable to pay advance tax.
c. Every income including capital gain, winning from lotteries, dividend, etc. is subject to advance tax. However,
it is not possible to estimate capital gain, casual gain or dividend or where income under the head “Profits and
gains of business or profession” accrues or arises for the first time, therefore, where the assessee has paid the
whole of the amount of tax payable in respect of such income -
i. As part of the remaining installments of advance tax which were due; or
ii. Where no installments were due, by March 31 of the financial year immediately preceding the assessment
year, - then it is deemed that all the provisions are complied.
d. While calculating advance tax, net agricultural income shall also be taken into consideration for computing
tax liability.
 AdvanCe Tax
e. If any assessee does not pay any installment within due date he shall be deemed to be an assessee in default in
respect of such installment [Sec. 218]
f. Any sum, other than a penalty or interest, paid by an assessee as advance tax shall be treated as a payment of
tax and credit for such shall be given to the assessee in the regular assessment [Sec. 219]

3.5.1 Procedure to pay Advance Tax

a. On assessee’s own motion [Sec. 210(1)]
Procedure for 1st installment:
1. Make an estimate of current year’s income, considering brought-forward losses, after deducting all
allowable deductions under chapter VIA.
Note: The estimate is not required to be filed with the tax authorities.
2. Compute the tax liability on above estimated income at the rates in force during the financial year and
reduce rebate, If any.
3. Add surcharge (if applicable).
4. Add Health and Education cess.
5. Deduct tax deducted or collected at source.
6. The amount so derived is the advance tax payable.
Where the advance tax payable is ₹ 10,000 or more, an appropriate percentage thereof should be deposited.
Procedure for subsequent installments
i. Check if estimate of income made earlier requires revision.
ii. If not, deposit appropriate amount of second, third or fourth installment of advance tax.
iii. If estimate of income needs revision, then make a revised estimate and compute tax liability thereon.
iv. Determine advance tax payable in subsequent installments after deducting amount paid in earlier
installments.
v. Deposit such advance tax.
b. On receipt of order from the Assessing Officer [Sec. 210(3) or (4)]
The A.O. may pass an order and issue a notice of demand u/s 156 requiring the assessee to pay advance tax.
Conditions to be satisfied for issuing such order
 The assessee has already been assessed by way of a regular assessment in any previous year.
 The Assessing Officer is of opinion that such person is liable to pay advance tax.
 Such order can be passed at any time during the financial year but not after last day of February.
 Such order must be made in writing.
 Such order also specifies the amount of advance tax and the installments thereof to be paid by the assessee.
Note: Such order can be issued even if assessee has paid any installment of advance tax during the year,
which is, in the opinion of the Assessing Officer, not as per provision of sec. 211.
Determination of advance tax by the Assessing Officer
The amount determined by the Assessing Officer shall be the higher of the following –
 Tax on latest assessed income as per regular assessment; or
 Tax on income declared by the assessee in the return relating to the previous year subsequent to the
previous year for which regular assessment has been made.
Procedure to be followed by assessee on receipt of such order
Advance tax to be paid by Whether intimation to AO
Case
the assessee is required
Where income estimated by the On the basis of the order
No
Assessing Officer is correct of the Assessing Officer
 AdvanCe Tax
Where assessee estimates his current
On the basis of his own
income to be higher than that No
estimate
estimated by the Assessing Officer
Where assessee estimates his current Yes, assessee shall submit
On the basis of his own
income to be lower than that estimated his own estimate of current
estimate
by the Assessing Officer income to the Assessing
Officer (in Form 28A)
Note: As per sec. 210(4), Assessing Officer can revise his order to pay advance tax at any time before 1st
March of the relevant previous year.

Illustration: Find out the amount of advance tax payable by Mr. A on specified dates under the Income tax Act, 1961
for the financial year 2022-23:
Business income ₹ 4,85,000
Long term capital gain on 31-5-2022 ₹ 60,000
Winning from lotteries on 12-6-2022 ₹ 50,000
Interest on loan ₹ 10,000
Other income ₹ 5,000
Investment in PPF ₹ 10,000
Tax deducted at source:
Case 1 ₹ 38,000
Case 2 ₹ 15,000
Solution: Computation of total income of Mr. A for the previous year 2022-23
Particulars Details Amount
Profits and gains of business or profession 4,85,000
Capital gains: Long term capital gains 60,000
Income from other sources
Winning from lotteries 50,000
Interest on loan 10,000
Other income 5,000 65,000
Gross Total Income 6,10,000
Less: Deduction u/s 80C 10,000
Total Income 6,00,000
Computation of tax liability of Mr. A for the previous year 2022-23

Income Case 1 Case 2

Long term capital gain (₹ 60,000 @ 20%) 12,000 12,000
Winning from lotteries (₹ 50,000 @ 30%) 15,000 15,000
Balance income (₹ 4,90,000) 12,000 12,000
Tax 39,000 39,000
Less: Rebate u/s 87A Nil Nil
39,000 39,000
Add: Health & Education cess 1,560 1,560
40,560 40,560
Less: Tax Deducted at Source 38,000 15,000
Total Advance tax payable 2,560 25,560
 AdvanCe Tax
Advance tax to be paid on specified dates –
Case 1: Since amount of advance tax payable is less than ₹ 10,000, assessee is not liable to pay advance tax.
Case 2:
Alternate 1 Alternate 2
Date
Working Amount Working Amount
15-06-2022 15% of ₹ 25,560 3,834 15% of ₹ 25,560 3,834
15-09-2022 30% of ₹ 25,560 7,668 [(45% of ₹ 25,560) – ₹ 3,834] 7,668
15-12-2022 30% of ₹ 25,560 7,668 [(75% of ₹ 25,560) – (₹ 3,834 + ₹ 7,668)] 7,668
15-03-2023 25% of ₹ 25,560 6,390 [100% of ₹ 25,560 – (₹ 3,834 + ₹ 7,668 + ₹ 6,390
7,668)]
Total 25,560 Total 25,560

Illustration: Find out the amount of advance tax payable by A on specified dates for the financial year 2022-23:

Business income (Tax of ₹ 4,704 is deducted at source) ₹ 5,11,000

Agricultural income ₹ 86,000

Solution: Computation of tax liability of A for the previous year 2022-23

Particulars ₹
Tax on ₹ 5,97,000 (i.e. agricultural income ₹ 86,000 + non-agricultural income ₹ 5,11,000) 31,900
Less: Tax on ₹ 3,36,000 (i.e. agro income ₹ 86,000 + maximum exempted limit ₹ 2,50,000) 4,300
Tax liability 27,600
Less: Rebate u/s 87A Nil
27,600
Add: Health & Education cess 1,104
Tax and cess payable 28,704
Less: TDS 4,704
Advance tax payable 24,000
Advance tax to be paid on specified dates –

Alternate 1 Alternate 2
Date
Working Amount Working Amount
15-06-2022 15% of ₹ 24,000 3,600 15% of ₹ 24,000 3,600
15-09-2022 30% of ₹ 24,000 7,200 [(45% of ₹ 24,000) – ₹ 3,600] 7,200
15-12-2022 30% of ₹ 24,000 7,200 [(75% of ₹ 24,000) – (₹ 3,600 + ₹ 7,200)] 7,200

15-03-2023 25% of ₹ 24,000 6,000 [100% of ₹ 24,000 – (₹ 3,600 + ₹ 7,200 + ₹ 6,000

7,200)]
Total 24,000 Total 24,000