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Unit 12: Advance Tax Planning and Tax Relief

Introduction Notes

Tax payers whose total income is likely to be chargeable to tax for the assessment year are required

to pay tax in advance during the financial year (April 1 to March 31) on their estimated current

income, which will be assessable to tax during the next following financial year called assessment
year. The current income for this purpose means the total income which will be chargeable to tax
in the relevant assessment year. The advance tax payable is the tax on the current income minus
the tax deductible at source or collectible out of any income included in the current income.
Although the income of previous year of the assessee is taxable in the immediately following
assessment year, the assessee has to pay advance tax during the financial year proceeding the

assessment year on the basis of his own computation of income. At present, all items of income
including capital gains, winnings from lotteries, etc. are liable for payment of advance tax. So,
before one can embark on a study of advance tax planning and tax relief, it is absolutely vital
to understand the concept of advance tax payment along with its due dates and Interest on late
payment on it as well as understand the meaning of double taxation relief and its provisions
in India. The purpose of this unit is to enable the students to comprehend basic expressions.
Therefore, all such basic terms are explained and suitable illustrations are provided to defi ne
their meaning and scope.

12.1 Concept of Advance Tax Payment

Advance payment of tax is another method of collection of tax by the Central Government in the
form of ‘Prepaid Taxes’. Such advance tax is in addition to deduction of tax at source or collection
of tax at source. Scheme of advance payment of tax is also known as ‘pay as you earn’ scheme
i.e., the assessee is required to pay tax during the course of earning of income in the previous
year itself, though such income in chargeable to tax during the assessment year. Advance tax is
payable on current income in instalments during the previous year.

Example: All persons including salaried employees and pensioners, in whose case tax
payable during a financial year is ` 10,000 or more after adjusting all deductions, rebates & TDS

are required to pay advance tax.
The provisions of advance tax are applicable on all types of persons irrespective of the residential
status of the person. The advance tax is paid in the previous year itself. Thus, the tax is paid in
the year of earning of income, in other words the earning of income and payment of tax goes
simultaneously. Thus, the tax is paid as income is earned. This scheme of advance payment of tax
is also called pay as you earn scheme, i.e., pay tax as you earn income. Payment of advance tax on
estimated Income during the current year is required to pay for all assesses.

Example: In the Financial Year 2010-11 (Assessment Year 2011-12) advance tax is payable
in instalments during the period 01.04.2010 to 31.03.2011 itself. The total amount of Advance Tax
will be adjusted during the Assessment Year 2011-12 at the time of assessment.

Tax on current income at the rate in force during the financial year will be calculated by the

assessing officer. From such tax calculated, the amount of income-tax which would be deductible

or collectible at source during the said financial year shall be reduced and the amount of income-
tax as so reduced shall be the advance tax payable. In revision of order for payment of advance

tax [Section 210(4)], if, after making the above order, by the assessing officer, but before 1st March,
return of income is furnished by the assessee or a regular assessment of the assessee is made in

respect of any later year, for any higher figure the assessing officer may make an amended/
revised order to pay advance tax. On receipt of the revised order, the assessee will have to pay
advance tax accordingly.

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