Payment of advance tax by assessee on his own accord.

406(1)

Every person, who is liable to pay advance tax under section 404 (whether or not he has been previously assessed by way of regular assessment) shall, on his own accord, pay advance tax on the specified sum, calculated in the manner laid down in section 405, at the appropriate percentage, and on or before the due date of each instalment, as specified in section 408.

406(2)

A person who pays any instalment or instalments of advance tax under sub-section (1), may increase or reduce the amount of advance tax to accord with specified sum and the advance tax payable thereon, and make payment of the said tax in the remaining instalment or instalments, accordingly.

406(3)

In this section, the expression “specified sum” means current income as estimated by the assessee.

Explanation

Section Summary:

Section 406 of the new income tax law in India deals with the payment of advance tax by taxpayers on their own accord. It mandates that individuals or entities liable to pay advance tax (as per Section 404) must estimate their current income and pay the tax in instalments by the due dates specified in Section 408. The section also allows taxpayers to adjust their advance tax payments in subsequent instalments based on revised income estimates.

Key Changes:

1. Self-Assessment of Advance Tax: Unlike previous provisions, this section emphasizes that taxpayers must calculate and pay advance tax on their own, without waiting for a formal assessment by tax authorities.
2. Flexibility in Adjustments: Taxpayers can now revise their advance tax payments in subsequent instalments if their estimated income changes during the year.
3. Clarification of "Specified Sum": The term "specified sum" is explicitly defined as the taxpayer's estimated current income, providing clarity on how advance tax is calculated.

Practical Implications:

• For Taxpayers: Individuals and businesses must proactively estimate their income and pay advance tax in instalments. Failure to do so may result in interest penalties under Section 234B and 234C.
• For Businesses: Companies with fluctuating income can adjust their advance tax payments mid-year, reducing the risk of overpayment or underpayment.
• For Compliance: Taxpayers must maintain accurate records of income estimates and advance tax payments to avoid discrepancies during tax assessments.

Critical Concepts:

• Advance Tax: Tax paid in advance during the financial year, based on estimated income, rather than at the end of the year.
• Specified Sum: The taxpayer's estimated current income for the financial year, used to calculate advance tax.
• Instalment Due Dates: As per Section 408, advance tax is paid in instalments on specific dates (e.g., 15th June, 15th September, 15th December, and 15th March).

Compliance Steps:

1. Estimate Income: Calculate your estimated income for the financial year.
2. Calculate Advance Tax: Apply the appropriate tax rates to the estimated income to determine the advance tax liability.
3. Pay Instalments: Pay advance tax in instalments by the due dates specified in Section 408.
4. Revise Estimates: If your income estimate changes, adjust the advance tax amount in the remaining instalments.
5. Maintain Records: Keep documentation of income estimates and advance tax payments for future reference.

Examples:

• Scenario 1: A freelancer estimates their annual income at ₹10 lakhs. They calculate advance tax at 30% (₹3 lakhs) and pay it in four instalments (₹75,000 each) by the due dates.
• Scenario 2: A business initially estimates its income at ₹50 lakhs and pays advance tax accordingly. Mid-year, they revise their estimate to ₹60 lakhs due to increased revenue. They adjust the remaining instalments to reflect the higher tax liability.

This section ensures taxpayers take responsibility for their advance tax obligations while providing flexibility to adjust payments based on changing income estimates.