Payment of advance tax by assessee in pursuance of order of Assessing Officer.

407(1)

Where a person has already been assessed for the total income of any tax year by way of regular assessment and the Assessing Officer is of the opinion that such person is liable to pay advance tax, he may require such person to pay advance tax on the specified sum, calculated in the manner laid down in section 405, by an order in writing, and specifying the instalment or instalments in which such tax is to be paid, on or before the due date of each instalment specified in section 408.

407(2)

The order referred to in sub-section (1) may be passed at any time during the tax year but not later than the last day of February of such tax year and it shall be followed by a notice of demand under section 289.

407(3)

In sub-section (1), “specified sum” means a sum, being higher of,––

• (a) the total income of the latest tax year in respect of which the assessee has been assessed by way of regular assessment; or
• (b) total income returned by the assessee in any return of income furnished by him for any subsequent tax year.

407(4)

The Assessing Officer may amend the order referred to in sub-section (1), and may require such person to pay advance tax on the specified sum, calculated in the manner laid down in section 405, if after passing an order under sub-section (1),—

• (a) a return of income is furnished by the assessee, under section 263 or in response to a notice under section 268; or
• (b) a regular assessment of the income is made in respect of a tax year later than the assessment referred to in sub-section (1), on or before the due date of each instalment specified in section 408.

407(5)

The order referred to in sub-section (4) may be passed at any time before the 1st March of that tax year and it shall be followed by issuance of a demand notice under section 289.

407(6)

In sub-section (4), “specified sum” means the total income declared in the return of income or computed in regular assessment mentioned in sub-section (4) (a) and (b), respectively.

407(7)

If the notice of demand issued under section 289, as referred in sub-sections (2) and (5), is served after any of the due dates specified in section 408, the appropriate part or, the whole of the amount of the advance tax specified in such notice, shall be payable on or before each of the due date falling after the date of service of the notice of demand.

407(8)

Where a person, who is served with an order referred to in sub-sections (1) and (4), estimates the advance tax payable on his current income to be lower than the amount of advance tax specified in the said order, then, he may send an intimation in the prescribed form to the Assessing Officer to that effect, and pay such advance tax on the current income, calculated in the manner laid down in section 401 as accords with his estimate, at an appropriate percentage thereof on or before the due date of each instalment specified in section 408 falling after the date of such intimation.

407(9)

Where a person, who is served with an order referred in sub-sections (1) and (4), estimates that advance tax payable on his current income would exceed the amount of advance tax specified in such order or intimated by him under sub-section (8), he shall pay such advance tax on the current income, calculated in the manner laid down in section 405 at the appropriate part or whole of such higher amount of advance tax as accords with his estimate, on or before the due date of the last instalment specified in section 408.

Explanation

Section Summary:

Section 407 of the new income tax law deals with the payment of advance tax by an assessee (taxpayer) when the Assessing Officer (AO) determines that the taxpayer is liable to pay advance tax. This section outlines the process for issuing orders, calculating the advance tax, and the timelines for compliance. It also provides flexibility for taxpayers to adjust their advance tax payments based on their own estimates of current income.

Key Changes:

1. AO's Authority to Issue Advance Tax Orders: The AO can now issue an order requiring a taxpayer to pay advance tax if they believe the taxpayer is liable. This order must be issued by the last day of February of the relevant tax year.
2. Adjustments Based on Revised Income: The AO can amend the advance tax order if the taxpayer files a revised return or if a new assessment is made for a later tax year.
3. Taxpayer's Right to Estimate Lower or Higher Tax: Taxpayers can estimate their advance tax liability and adjust payments accordingly, provided they notify the AO in the prescribed form.

Practical Implications:

1. For Taxpayers: Taxpayers must be prepared to pay advance tax if the AO issues an order. They can also adjust their payments if their estimated income differs from the AO's calculation.
2. For Businesses: Businesses with fluctuating incomes may need to monitor their advance tax obligations closely, especially if they expect significant changes in income.
3. Compliance Burden: Taxpayers must ensure timely payment of advance tax instalments and communicate any adjustments to the AO to avoid penalties.

Critical Concepts:

1. Specified Sum: The higher of:
   • The total income from the latest tax year assessed by the AO, or
   • The total income declared in any subsequent tax year's return.
2. Advance Tax Instalments: Payments must be made by the due dates specified in Section 408.
3. Demand Notice (Section 289): A formal notice issued by the AO specifying the amount of advance tax to be paid.

Compliance Steps:

1. Monitor AO Orders: Be aware of any advance tax orders issued by the AO.
2. Estimate Current Income: If your current income is expected to differ from the AO's calculation, estimate your advance tax liability.
3. Notify the AO: If your estimate is lower or higher than the AO's order, notify the AO in the prescribed form.
4. Pay Advance Tax: Pay the advance tax by the due dates specified in Section 408. If a demand notice is issued after a due date, pay the remaining amount by the next due date.

Examples:

1. Scenario 1: The AO issues an advance tax order based on your last assessed income of ₹10 lakh. However, you estimate your current income to be ₹8 lakh. You can notify the AO and pay advance tax based on ₹8 lakh.
2. Scenario 2: The AO issues an order in January, but you file a revised return in February showing higher income. The AO can amend the order, and you must pay the revised advance tax by the due dates.
3. Scenario 3: A demand notice is issued after the first instalment due date. You must pay the remaining advance tax by the next due date.

This section ensures that advance tax obligations are aligned with the taxpayer's actual income, providing flexibility while maintaining compliance.