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Advance tax calculation: Firms may have to furnish Apr-Sept income estimates
September, 20th 2017

Under the present mechanism, taxpayers have to only pay advance tax to the CBDT on income tax payable for the whole financial year in four instalments, but they are not required to provide estimates of income to the I-T department.

Companies and assessees who are required to get their accounts audited will soon have to submit estimates of income and tax liability for first six months of a financial year, as per the draft notification issued by the Central Board of Direct Taxes (CBDT) that seeks to insert a new Rule 39A in Income Tax Rules, 1962. The CBDT has placed the draft notification in public domain for comments by stakeholders by September 29.

“…a continuous flow of tax revenues throughout the year is critical for the government so as to meet various budgetary allocations such as welfare schemes, infrastructure development, defence expenditure etc. A reliable and advance estimate of tax revenues for the year would also provide much needed perspective for planning and prioritising the government expenditure. In order to address these concerns, it is proposed to create a mechanism for self-reporting of estimates of current income, tax payments and advance tax liability by certain taxpayers (companies and tax audit cases) on voluntary compliance basis. The proposed reporting mechanism is sought to be created by way of inserting a new Rule 39A and Form No. 28AA in the Income-tax Rules, 1962,” a CBDT statement said.

Also, businesses have to specify reason for any reduction in advance tax payment compared to the preceding financial year. In cases where the total income has declined by Rs 5 lakh or 10 per cent, whichever is higher, compared to the preceding financial year, then the taxpayer will have to furnish a similar statement of income and tax liability for April-December period by January 31.

Under the present mechanism, taxpayers have to only pay advance tax to the CBDT on income tax payable for the whole financial year in four instalments — June 15, September 15, December 15 and March 15 but they are not required to provide estimates of income to the I-T department.

The CBDT plans to insert Rule 39A in the Income Tax Rules wherein companies and those assessees who have to get their accounts audited will have to submit Form 28AA, giving details of income and tax paid. “An assessee being a company and a person, to whom the provisions of section 44AB are applicable shall furnish an intimation of estimated income and payment of taxes as on September 30 of the previous year, on or before November 15 of the previous year,” the draft notification said.

The CBDT said that a taxpayer who is liable to discharge part of its tax liability by way of advance tax has to bear additional burden of interest for default of advance tax, in case total advance tax paid for the year falls short of the assessed tax by ten per cent or more. Such taxpayers are further liable to pay interest for deferment of advance tax, in case any quarterly instalment of advance tax paid falls short of the prescribed percentage of total advance tax paid.

“It is of utmost importance for such taxpayers to arrive at a reasonably accurate estimate of their current income and advance tax liability, so that the additional burden on account of interest for default/deferment of advance tax can be avoided,” the CBDT said.

Nangia & Co Associate Director Shalu Kedia said that this measure will add to the compliances for the corporates. “We are surely moving fast towards tax transparency, but additional compliance on India Inc may not go down well, when the corporates are already struggling with GST and Ind AS compliance,” she said.

“Casting additional responsibility of voluntarily reporting estimated income under normal & MAT provisions, turnover, profit before taxes, TDS etc. shall require the assessee to prepare a detailed estimated computation of taxable income. Besides, there is an added responsibility on the assessee to justify if the advance tax liability of current year is less than the preceding year. Considering that the final computation of income at the close of the financial year may vary significantly from the estimates filed for six months/ nine months, the variance could become a matter of discussion during the assessment proceedings,” she added.

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