Advance tax calculation of involves estimation of tax liability which is impossible to predict in businesses where high fluctuations, uncertainties, contingencies & speculation prevail. CBDT should further exclude few categories of taxpayers from the purview of advance tax provision: Tax Talk

TAX TALK-04.10.2017-THE HITAVADA

TAX TALK

CA. NARESH JAKHOTIA

Chartered Accountant

Advance tax Rules:
Calculation of advance tax purely involves estimation of tax liability. It is purely impossible to predict the profit in businesses where high fluctuations, uncertainties, contingencies & speculation prevail.  To this extent, the provision is illogical & need consideration. CBDT should further exclude few categories of taxpayers from the purview of advance tax provision. Till it is done so, taxpayers don’t have any other alternative but to make a wild guess.

Tax benefit on donation to approved trust

Query 1]

I am Govt. Pensioner, senior citizen past 80 years age. My gross income during F.Y.2016-17 is Rs. 9,15,536/- I can claim deduction of Rs. 1,60,000/- under 80C & 80TTA. My donation to Public charitable Institutions is Rs. 3,00,000/- during F.Y. 2016-17. Can I claim deduction under 80G amounting to Rs. 75,554/- (i.e., 50% of three lakh restricted to 10% of Rs. (915536-160000)= 75,554/-? While filling return electronically, this figure is shown as Rs. 37,772/- as system calculated. And therefore, I held up filing of return. Kindly advise which amount is admissible under section 80G so that I can file return correctly. [Sharashchandra Ambekar-

swaambekar@yahoo.in]

Opinion:

“The best way to find yourself, is to lose yourself in the service of others” — Mahatma Gandhi

Income Tax Act offers tax offers benefit on donation to certain trust & institutions provided that such trust/ institutions are approved u/s 80G(5)(vi) of the I.T. Act, 1961. If the trust is approved, the receipt of donation issued by the trust would contain the registration number U/s 80G(5)(vi). The total deduction u/s 80G is restricted to a maximum of 10% of the “Adjusted Gross Total Income”. Adjusted gross total income is gross total income as reduced by the amount u/s 80C to 80U (excluding 80G) & certain other special income. There is one more condition. Deduction admissible in majority of the case is restricted to 50% the eligible amount (100% deduction is admissible in very few cases like donation to Prime Minister’s various Relief Fund, National defense fund, National children’s fund, National fund for communal harmony etc). Section 80G has been amended so as to provide that payment exceeding Rs. 2,000/- (earlier, Rs. 10,000/-) will be allowed as deduction u/s 80G only if it paid by any mode other than cash.

There are three steps that one needs to follow to arrive at the amount eligible for deduction u/s 80G. First step is to find out the gross qualifying amount which is the amount of donation (i.e., Rs. 3 Lakh in your case). Second is to find out the amount of net qualifying amount which cannot exceed 10% of the adjusted gross total income (i.e., Rs. 75,553/-). The third step is to find out the amount deductible which is 50% (100% in few cases as mentioned above). In your case, you have correctly calculated the amount till 2^nd steps. In the third steps, 50% of the net qualifying amount (i.e., Rs. 75,553/-) needs to be worked out for claiming deduction which is Rs.  37,776/-.

Query 2]

I am a senior citizen getting pension through bank and regularly pay Income Tax on pension and bank interest after completing the financial year. But from this July, I have started Intraday trading as well as delivery base share trading based on the market condition. Now, my question is whether I have to pay Advance Tax?

If yes then how it is to be calculated? How can I know that what will be my total income before finishing the FY? How much amount I have to pay as Advance Tax and when? Which Form I have to file next year? Please guide me. [nrdeb52@gmail.com]

Opinion:

Advance tax is “pay-as-you-earn” concept of levying taxation.

Though income tax return is required to be filed annually, a mechanism in the form “Advance Tax” is deployed by the Government for speedy and evenly collection of tax. Advance tax is a mechanism in which tax is to be deposited by taxpayer in installment instead of entire amount being deposited at the time of filing income tax return. Income tax rules make it mandatory to pay advance tax if the income tax liability is Rs 10,000/- or more. Advance tax applies to all cadre of tax payers be it salaried, freelancers, and businessmen. It is equally good for the taxpayer as the tax liability is sliced in to smaller quantum. If advance tax is not paid or the amount of advance tax paid is less than 90% of the assessed tax, taxpayer shall be liable to pay simple interest
i] @ 1% p.m. u/s 234B from 1^st day of assessment year up to date of deposit tax & interest;
ii] @ 1% p.m. for a period of 3 months  u/s 234C if the payment of advance tax is deferred beyond the due dates except for the last installment of 15^th March where it will be for one month only.

Advance tax is required to be paid before a particular date as a percentage of the total tax (after reducing TDS/TCS) estimated for the entire year. So in order to pay advance tax, taxpayers need to estimate his annual income, work out tax liability (after reducing TDS/TCS) & then pay advance tax at a specified percentage. These payments have to be made in installments as per due dates provided by the income tax department.

Taxpayers (other than those covered by presumptive taxation u/s 44AD & 44ADA who are required to pay advance tax at one go by 15^th March) are required to pay Advance Tax in 4 installments as under:

Due Date	Installment Payable
On or before 15th June	Not less than 15% of advance tax.
On or before 15th  Sept	Not less than 45% of advance tax as reduced by the amount paid in the earlier installment.
On or before 15Th Dec	Not less than 75% of advance tax as reduced by the amount paid in the earlier installments.
On or before 15Th Mar,	The whole amount (100%) of advance tax as reduced by the amount paid in the earlier installments.

In your specific case, it may be noted that:

1.      Senior citizens carry special privilege in the form of exemption from payment of advance tax if they don’t have any income chargeable under the head “Profits and gains of business or profession”. In short, senior citizens without any business income are not required to pay any advance tax.

2.      In your specific case, you intend to do the frequent trading in shares & resultant income would be liable to be taxed as “Income from Business”. As a result, you would not be exempt from payment of Advance tax.

3.      Calculation of advance tax purely involves estimation of tax liability. It is purely impossible to predict income where high fluctuations, uncertainties, contingencies & speculations prevail. To this extent, the provision is illogical & need consideration. CBDT should further exclude few categories of taxpayers from the purview of advance tax provision. Till it is done so, taxpayers don’t have any other alternative but to make a wild guess.

[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at

SSRPN & Co

10, Laxmi Vyankatesh Apartment

C.A. Road, Telephone Exch. Square

Nagpur-440008

or email it at nareshjakhotia@ssrpn.com]