Conditions of liability to pay advance tax.
404
Advance tax shall be payable by the assessee during a tax year, where the amount of such tax during that year, as computed under this Part, is ten thousand rupees or more.
Explanation
Section Summary:
Section 404 of the new income tax law specifies the conditions under which an assessee (taxpayer) is liable to pay advance tax during a tax year. The key condition is that if the computed advance tax liability for the year is ₹10,000 or more, the taxpayer must pay advance tax.
Key Changes:
- Threshold for Advance Tax Liability: The new law maintains the threshold of ₹10,000 for advance tax liability, which was also present in the prior income tax law. However, this section consolidates and clarifies the conditions under which advance tax becomes payable.
- Clarity in Computation: The section emphasizes that the advance tax liability must be computed as per the provisions outlined in this part of the law, ensuring consistency in calculations.
Practical Implications:
- For Taxpayers: Taxpayers whose advance tax liability is ₹10,000 or more must pay advance tax in installments as prescribed by the law. This applies to individuals, businesses, and other entities.
- For Businesses: Companies and businesses with significant tax liabilities must ensure timely payment of advance tax to avoid penalties and interest.
- Compliance Burden: Taxpayers must accurately estimate their tax liability for the year to determine if they fall under the advance tax payment requirement.
Critical Concepts:
- Advance Tax: This is the tax paid in advance during the financial year, based on the estimated income for that year. It is paid in installments as per due dates specified by the tax authorities.
- Computation of Advance Tax: The advance tax liability is calculated based on the estimated total income for the year, after considering deductions, exemptions, and applicable tax rates.
Compliance Steps:
- Estimate Tax Liability: At the beginning of the financial year, estimate your total income and compute the tax liability.
- Check Threshold: If the computed advance tax liability is ₹10,000 or more, you are required to pay advance tax.
- Pay in Installments: Pay advance tax in the prescribed installments by the due dates (typically June 15, September 15, December 15, and March 15).
- Maintain Records: Keep documentation of income estimates, tax calculations, and proof of advance tax payments for compliance and audit purposes.
Examples:
- Individual Taxpayer: Suppose Mr. A estimates his total income for the year to be ₹8,00,000. After deductions, his taxable income is ₹6,00,000. The tax liability on this income is ₹30,000 (assuming a 5% tax rate). Since this exceeds ₹10,000, Mr. A must pay advance tax in installments.
- Business Entity: A company estimates its annual profit to be ₹50,00,000, leading to a tax liability of ₹15,00,000. As this is well above ₹10,000, the company must pay advance tax in the specified installments.
This section ensures that taxpayers with significant tax liabilities contribute to the government’s revenue throughout the year, rather than paying a lump sum at the end of the financial year.