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June 10, 2022

Challan, e-payment Utility, and Advance Tax Provisions

by CA Shivam Jaiswal in Income Tax

Challan, e-payment Utility, and Advance Tax Provisions

Liability to pay advance tax

According to section 208, anybody with an estimated tax burden of Rs. 10,000 or more for the year must pay their tax in advance in the form of “advance tax.”

Person not liable to pay advance tax

Anyone with an expected tax due of Rs. 10,000 or more for the year is required to pay advance tax. A resident senior citizen (i.e., someone who is 60 years old or older during the relevant financial year) who does not earn money through a business or profession is not required to pay advance tax.

Illustration

Mr. Kumar owns and operates a grocery store. The store’s total revenue for the fiscal year 2022-23 was Rs. 1,84,00,000. He intends to report income under section 44AD at 8% of turnover. He doesn’t have any other means of support. Is he going to have to pay advance tax?

Mr. Kumar fulfills the conditions of section 44AD in relation of his supply store business, hence he can use section 44AD’s provisions and declare income at 8% of turnover.

A taxpayer who chooses section 44AD’s presumptive taxation system is also obligated to pay advance tax on business covered by section 44AD. Mr. Kumar will be obligated to pay advance tax on income generated from his provision store business if he follows the provisions of section 44AD.

Illustration

Mr. Vipul (39 years old) owns and operates a medical supply store. The store had a revenue of Rs. 40,00,000 in the financial year 2022-23. His financial statements showed a net profit of Rs. 2,60,000. Is he going to have to pay advance tax?

If Mr. Vipul’s expected tax burden for the financial year is Rs. 10,000 or higher, he will be required to pay advance tax on income generated from his medical store business. Mr. Vipul has a taxable income of Rs. 2,60,000. Mr. Vipul will not be required to pay advance tax on the amount of Rs. 2,60,000 because the tax on it will be NIL.

The following are the normal tax rates for individuals under the age of 60 for the financial year 2022-23:

  • Nil up to Rs. 2,50,000 in earnings
  • 5% for earnings over Rs. 2,50,000 but up to Rs. 5,00,000
  • 20% for earnings above Rs. 5,00,000 but up to Rs. 10,00,000
  • 30% for earnings above Rs. 10,00,000

If a taxpayer is an individual residing in India, a rebate of Rs. 12,500 or 100% of tax, whichever is lesser, would be paid under section 87A if his total income does not exceed Rs. 5,00,000.

A 4% health and education cess will be added to the total tax amount.

Payment dates for advance taxes

The advance tax will be paid in instalments. The following are the due dates for various advance tax instalments:

StatusBy 15th JuneBy 15th SeptBy 15th DecBy 15th March
Everyone who has been assessed (other than the eligible assessee as referred to in Section 44AD or section 44ADA)  Minimum 15% of advance taxMinimum 45% of advance taxMinimum 75% of advance taxMinimum 100% of advancr tax
Section 44AD or 44ADA taxpayers who chose the presumptive taxation planNilNilNilMinimum 100% of advance tax

Note 1: Any tax paid before the 31st of March is considered advance tax.

Note 2: If the last day for payment of any advance tax instalment falls on a bank holiday, the taxpayer must pay the advance tax on the next working day.

Illustration

Mr. Kumar is a doctor. MR. Kumar works in a profession that is specified under Section 44AA(1), however he does not use the Section 44ADA presumptive taxation scheme. For the financial year 2022-23, his projected tax liability was Rs. 1,000,000. What are the deadlines for paying advance tax and how much should he pay?

If the taxpayer’s projected tax liability is Rs. 10,000 or higher, he must pay advance tax to satisfy his tax liability. The advance tax will be paid in instalments. The following are the due dates for various advance tax instalments:

StatusBy 15th JuneBy 15th SeptBy 15th DecBy 15th March
Everyone who has been assessed (other than the eligible assessee as referred to in Section 44AD or section 44ADA)  Minimum 15% of advance taxMinimum 45% of advance taxMinimum 75% of advance taxMinimum 100% of advancr tax
Section 44AD or 44ADA taxpayers who chose the presumptive taxation planNilNilNilMinimum 100% of advance tax

Mr. Kumar is a doctor, which is a profession covered by section 44AA(1), however he does not use the section 44ADA presumptive taxation plan. As a result, he must pay advance tax in four instalments, as follows:

  • On the 15th of June 2022, his first instalment of advance tax will be due. He must pay 15% of his tax burden in advance, which means he must pay Rs. 15,000 in advance tax by June 15, 2022.
  • The second instalment of his advance tax is due on September 15, 2022. He must pay 45 percent of his debt in advance by September 15th, i.e. Rs. 45,000. Assuming he paid Rs. 15,000 in advance tax by the 15th of June, he should pay the remaining Rs. 30,000 in advance tax by the 15th of September in 2022. As a result, the total advance tax payment until September 15th will be Rs. 45,000.
  • On the 15th of December 2022, his third instalment of advance tax will be payable. He must pay 75 percent of his debt in advance by December 15th, i.e. Rs. 75,000. Assuming he has already paid Rs. 45,000 in advance tax through September 15th, he must pay the remaining Rs. 30,000 in advance tax by December 15th, 2022. As a result, the total payment of advance tax till the 15th of December 2022 will be Rs. 75,000.
  • His fourth and final advance tax instalment is due on March 15, 2023. He must pay 100 percent of his debt in advance by March 15th, i.e. Rs. 1,00,000. Assuming he has already paid Rs. 75,000 in advance tax until the 15th of December, he must pay the remaining Rs. 25,000 in advance tax by the 15th of March in 2023. As a result, the total payment of advance tax until March 15, 2023 will be Rs. 1,00,000.

The payment of advance tax can be made in a variety of ways.

A corporate taxpayer (i.e., a firm) must pay taxes electronically utilising the internet banking capability of authorised banks, according to Rule 125 of the Income-tax Rules, 1962. Taxpayers who are not companies and who are required to have their accounts audited must pay their taxes electronically using an authorised bank’s online banking facility.

Any other taxpayer can pay their taxes in one of two ways: electronically or physically, by depositing the challan at the receiving bank.

Payment of advance tax

The taxpayer can pay advance tax either on his own account or in response to an Assessing Officer’s order. Taxpayers who are obligated to pay advance tax must estimate their current income and pay advance tax on their own account. He is not obligated to provide any estimate or statement of income to the tax authorities in this situation. If the taxpayer’s tax burden changes after paying the first, second, or third instalment of advance tax (as the case may be), the taxpayer can amend the quantum of advance tax in the remaining instalment(s) and pay the tax according to revised estimates.

Tax can be calculated using the current income (as estimated by the taxpayer) and the rates in effect at the time. Tax deducted or collected at source will be deducted from the tax computed, and the balance tax payable will be utilised to compute the advance tax liability. While calculating the advance tax liability, any tax relief allowed under section 90 or section 90A, any deduction allowed under section 91, and any tax credit allowed to be set off under section 115JAA or section 115JD shall also be deducted.

Illustration

Mr. Raja is a professional architect. MR. Rana works in a profession that is listed under Section 44AA(1), however he does not use the Section 44ADA presumptive taxation scheme. His tax liability for the year is expected to be Rs. 1,000,000. By the 15th of June, he had paid Rs. 15,000 in advance tax. One of his clients paid a charge of Rs. 1,80,000 in August after subtracting Rs. 20,000 in tax at source (Such fees of Rs. 1,80,000 was considered at earlier occasion for estimating the tax liability of taxpayer). How much advance tax is he obliged to pay in the remaining instalments in this case?

If the taxpayer’s projected tax liability is Rs. 10,000 or higher, he must pay advance tax to satisfy his tax liability. The advance tax will be paid in instalments. The following are the due dates for payment of various payments of advance tax for all assessees (other than eligible assessees as defined in section 44AD or section 44ADA):

By 15th JuneBy 15th SeptBy 15th DecBy 15th March
15%45%75%100%

Mr. Raja must pay 15% of his estimated tax liability by June 15th, based on the foregoing dates. As a result, he must pay Rs. 15,000 in advance tax by June 15th.

The taxpayer can subtract the tax at source from his income when calculating his advance tax liability. In this scenario, Mr. Raja had no TDS credit at the time of the first instalment projection. His anticipated tax liability, without TDS, was Rs. 1,000,000. He received Rs. 1,80,000 in August after deducting Rs. 20,000 in tax, resulting in a TDS credit of Rs. 20,000. His tax liability will be Rs. 80,000 after TDS credit is granted.

He should pay up to 45 percent of his amended tax bill in the second instalment, which is due by September 15th. As a result, he must pay up to Rs. 36,000 (or 45 percent of Rs. 80,000) by September 15th. He had previously paid Rs. 15,000 by the 15th of June, thus the remaining of Rs. 21,000 should be paid by the 15th of September. He should pay 75 percent of his projected tax bill in the third instalment, which is due by the 15th of December. As a result, he must pay Rs. 60,000 (75 percent of 80,000) by December 15th. He has already paid Rs. 36,000 until September 15th, so he must pay the remaining Rs. 24,000 by December 15th (i.e., Rs. 60,000 – Rs. 36,000). Finally, in the fourth and final instalment, he should pay 100 percent of his projected tax burden by March 15th. As a result, he must pay Rs. 80000 by March 15th. He has previously paid Rs. 60000 until the 15th of December, so he must pay Rs. 20000 by the 15th of March (i.e., Rs.80000-Rs.60000).

Illustration

Mr. Rana is a professional engineer. MR. Rana works in a profession that is listed under Section 44AA(1), however he does not use the Section 44ADA presumptive taxation scheme. His tax liability for the year is expected to be Rs. 2,00,000. By the 15th of June, he had paid Rs. 30,000 in advance tax. He was offered a contract by a multinational corporation in August. His revised tax bill for the year is Rs. 3,00,000 after adding the receipts from the new contract. How much advance tax is he expected to pay in each instalment in this case?

If the taxpayer’s projected tax liability is Rs. 10,000 or higher, he must pay advance tax to satisfy his tax liability. The advance tax will be paid in instalments. The following are the due dates for payment of various payments of advance tax for all assessees (other than eligible assessees as defined in section 44AD or section 44ADA):

By 15th JuneBy 15th SeptBy 15th DecBy 15th March
15%45%75%100%

Mr. Rana must pay 15% of his projected tax burden by June 15th, based on the foregoing dates. As a result, he must pay Rs. 30,000 in advance tax by June 15th (in June he was not aware of the contract and, hence, Rs. 30,000 will be payable in first instalment of advance tax liability). If the tax burden changes after the first/second instalment of advance tax is paid, the taxpayer can amend the amount of advance tax in the remaining installment(s) and pay the tax according to the new estimate. In this scenario, he received the contract from the global firm after paying the first instalment, and his updated estimated tax burden was Rs. 3,00,000, therefore he had to pay the tax. As a result, he must pay Rs. 3,00,000.

He should pay up to 45 percent of his amended responsibility in the second instalment, which is due by September 15th. As a result, he must pay up to Rs. 1,35,000 (or 45 percent of Rs. 3,00,000) by September 15th. He had previously paid Rs. 30,000 by the 15th of June, thus the remaining of Rs. 1,05,000 should be paid by the 15th of September. He should pay 75 percent of his projected tax bill in the third instalment, which is due by the 15th of December. As a result, he must pay up to Rs. 2,25,000 (75 percent of Rs. 3,00,000) by December 15th. He has already paid Rs. 1,35,000 until September 15th, so he must pay the remaining Rs. 90,000 by December 15th (i.e. Rs. 2,25,000 – Rs. 1,35,000).

He should pay 100 percent of his projected tax burden in the fourth and final instalment, i.e. by March 15th. As a result, he must pay up to Rs. 3,00,000 by March 15th. He has already paid Rs. 2,25,000 until the 15th of December, so he must pay the remaining Rs. 75,000 by the 15th of March (i.e., Rs. 3,00,000 – Rs. 2,25,000).

Payment of advance tax in accordance with an Assessing Officer’s order

If a taxpayer fails to pay advance tax (or pays less than the required amount) and has already been assessed on his total income in a previous year, the Assessing Officer may issue an order under section 210(3) requiring him to pay advance tax on his current year’s income (specifying the amount of instalments in which tax should be paid). An order of this nature may be issued at any time during the fiscal year, but no later than the final day of February. If the taxpayer’s estimate is lower than the Assessing Officer’s estimate, the taxpayer can submit his own estimate of advance tax after receiving the notice from the Assessing Officer.

Alternatively, if the taxpayer’s own estimate of advance tax on current income is likely to be higher than the Assessing Officer’s estimate, the taxpayer must pay the larger amount as advance tax in line with his own calculation. There is no need to notify the Assessing Officer in this circumstance. Under section 210, the Assessing Officer can alter his order requiring the taxpayer to pay advance tax (as explained above) (4). If a return of income for a future year has been submitted by the taxpayer or any assessment for a subsequent year has been filed by the taxpayer after the order to pay advance tax has been issued but before the 1st March of the relevant financial year, such adjustment can be made.

Illustration

Calculate the amount of advance tax due from Mr. Kapoor (age 35) based on the following information (for the year 2022-23):

  • Rs. 10,840,000 in taxable business income
  • Rs. 9,000 in debenture interest (after deduction of tax at source of Rs. 1,000).
  • During the year, Rs. 80,000 was invested in NSC.
  • He has paid Rs. 1333 in tuition fees for his son.

Mr. Kapoor’s taxable income and tax liabilities for the financial year 2022-23:

ParticularsRS.
Profits and gains of business or profession Taxable business income10,84,000
Income from other source Debenture interest (Rs. 9,000 net interest + TDS of Rs. 1,000)10,000
Gross total income10,94,000
Less: Deduction under section 80C (NSC and tuition fees)81,333
Total Income (i.e. Taxable Income)10,12,667
Tax on Rs. 10,12,6671,16,300
Less: Rebate under section 87A (lower of 100% of tax or Rs. 12,500)Nil
Tax liability after rebate under section 87A1,16,300
Add: Health and Education cess @ 4%4,652
Tax liability before TDS1,20,952
Less: Tax deducted at source1,000
Tax liability after TDS1,19,952

The following are the regular tax rates for individuals under the age of 60 for the financial year 2022-23:

  • Nil up to Rs. 2,50,000 in income
  • 20% for income over Rs. 2,50,000 but up to Rs. 5,00,000
  • 30% for income above Rs. 5,00,000 but up to Rs. 10,00,000
  • Nil for income above Rs. 10,00,000.

Apart from that, a 4% health and education cess would be added to the total tax amount.

According to section 208, anybody with an expected tax burden of Rs. 10,000 or more for the year must pay their tax in advance in the form of “advance tax.” Mr. Kapoor is required to pay advance tax in this case since the tax debt is Rs. 1,19,952.

The following are the due dates for payment of various payments of advance tax for all assessees (other than the eligible assessees specified to in Section 44AD):

By 15th JuneBy 15th SeptBy 15th DecBy 15th March
15%45%75%100%

In based on the above mentioned dates, Mr. Kapoor will be required to pay the following advance tax on various dates:

The first instalment of his advance tax is due on June 15, 2021. His tax liability for the year is anticipated to be Rs. 1,19,952. (for easy computation, liability is rounded off to Rs. 1,19,950). He must pay 15 percent of his liability in advance by the 15th of June, thus he must pay Rs. 17,993 in advance tax by the 15th of June, 2022.

The second instalment of his advance tax is due on September 15, 2022. For the year, his anticipated tax liability is Rs. 1,19,952, which is rounded up to Rs. 1,19,950. He must pay 45 percent of his tax liability in advance by September 15th, i.e. Rs. 53,978. Assuming he has already paid Rs. 17,993 in advance tax by the 15th of June, he must pay the rest of Rs. 35,985 by the 15th of September 2022. As a result, the total advance tax payment until September 15th would be Rs. 53,978.

On the 15th of December 2022, his third instalment of advance tax will be payable. For the year, his anticipated tax liability is Rs. 1,19,952, which is rounded up to Rs. 1,19,950. He must pay 75 percent of his debt in advance by December 15th, i.e. Rs. 89,963. Assuming he has already paid Rs. 53,978 in advance tax by the 15th of September, he must pay the remaining of Rs. 35,985 by the 15th of December 2022. As a result, the total advance tax payment till the 15th of December would be Rs. 89,963.

His fourth and final advance tax instalment is due on March 15, 2023. For the year, his anticipated tax liability is Rs. 1,19,952, which is rounded up to Rs. 1,19,950. He must pay 100 percent of his responsibility in advance by March 15th, i.e. Rs. 1,19,950. Assuming he paid Rs. 89,963 in advance tax by the 15th of December, he should pay the rest of Rs. 29,988 by the 15th of March in 2023. As a result, the total advance tax payment until March 15th will be Rs. 1,19,950.

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