Income Tax 2025

Appearance

Computation of advance tax ​

405(1) ​

The amount of advance tax payable by an assessee under section 404, on his own accord under section 406, or in pursuance of an order of an Assessing Officer under section 407, in the tax year shall, subject to the provisions of sub-section (2), be computed as under–– A = B-C where,–– A = the amount of advance tax payable in a tax year; B = income-tax on the specified sum calculated at the rates in force in the tax year, where “specified sum” shall have the meaning assigned to it in section 406 or 407; C = amount of income-tax which would be deductible or collectible at source during the said tax year under any provision of this Act from any income subject to the following:––

  • (a) such income is computed before allowing any deduction admissible under this Act and has been taken into account in computing the specified sum; and
  • (b) the person responsible for deducting tax has paid or credited such income after deduction of tax; or
  • (c) the person responsible for collecting tax has received or debited such income after collection of tax.

405(2) ​

In the case of any class of assessees, where the Finance Act of the relevant year provides that, net agricultural income shall be taken into account for the purposes of computing advance tax, then,––

  • (a) for the purposes of order as mentioned in section 407(1) and (4), the net agricultural income shall be the amount that has been taken into account for the purposes of charging income-tax on the specified sum as mentioned in sub-sections (3) and (6) of the said section; or
  • (b) in any other situation, the net agricultural income as estimated by the assessee for the tax year.
Explanation

Section Summary: ​

Section 405 of the new income tax law outlines the method for computing advance tax payable by an assessee. Advance tax is the tax paid in installments during the financial year, based on estimated income. This section provides the formula for calculating advance tax and specifies how to account for tax deducted or collected at source (TDS/TCS) and net agricultural income, if applicable.

Key Changes: ​

  1. Introduction of a Formula: The section introduces a clear formula (A = B - C) for calculating advance tax, where:

    • A = Advance tax payable.
    • B = Income-tax on the specified sum (estimated income) at current tax rates.
    • C = TDS/TCS deducted or collected during the year.

  2. Inclusion of Net Agricultural Income: If the Finance Act allows net agricultural income to be considered for advance tax computation, it must be factored into the calculation. This is particularly relevant for individuals or entities with agricultural income.

Practical Implications: ​

  1. For Taxpayers: Taxpayers must estimate their total income (including agricultural income, if applicable) and calculate advance tax using the formula. They must also account for TDS/TCS already deducted or collected during the year.
  2. For Businesses: Businesses with fluctuating incomes must ensure accurate estimation of income to avoid underpayment or overpayment of advance tax.
  3. For Compliance: Taxpayers must maintain records of estimated income, TDS/TCS, and net agricultural income (if applicable) to compute advance tax correctly.

Critical Concepts: ​

  1. Specified Sum: This refers to the estimated income on which advance tax is calculated. It is defined in Sections 406 or 407.
  2. Net Agricultural Income: Income from agriculture after deducting allowable expenses. It is considered only if the Finance Act permits it for advance tax computation.
  3. TDS/TCS Adjustment: Tax already deducted or collected at source is subtracted from the total tax liability to determine the advance tax payable.

Compliance Steps: ​

  1. Estimate Total Income: Calculate your estimated income for the year, including any net agricultural income if applicable.
  2. Compute Tax Liability: Apply the current tax rates to the estimated income to determine the total tax liability (B).
  3. Account for TDS/TCS: Subtract the total TDS/TCS (C) from the total tax liability (B) to arrive at the advance tax payable (A).
  4. Pay Advance Tax: Pay the computed advance tax in installments as per the due dates specified under the law.

Examples: ​

  1. Scenario 1: A salaried individual with no agricultural income:

    • Estimated income: ₹10,00,000.
    • Tax on ₹10,00,000 at current rates: ₹1,12,500 (B).
    • TDS deducted by employer: ₹50,000 (C).
    • Advance tax payable (A = B - C): ₹62,500.

  2. Scenario 2: A farmer with net agricultural income:

    • Estimated non-agricultural income: ₹5,00,000.
    • Net agricultural income: ₹3,00,000.
    • Total specified sum: ₹8,00,000.
    • Tax on ₹8,00,000 at current rates: ₹72,000 (B).
    • TDS deducted: ₹10,000 (C).
    • Advance tax payable (A = B - C): ₹62,000.

This section ensures taxpayers pay their tax liability in advance, reducing the burden at the end of the financial year.