Direct Tax Planning Advance Tax

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OBJECTIVE

You will be able to understand whenand how

advance tax is paid.

The due dates for payment ofadvance tax, and the concept ofthe pay as you earn scheme.


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INTRODUCTION Tax is paid in advance when the liability of

advance tax is Rs.5, 000 or more.

The provisions of advance tax are applicable onall types of persons irrespective of the residentialstatus of the person. The advance tax is paid in

the previous year itself.

Thus, the tax is paid in the year of earning ofincome, in other words the earning of incomeand payment of tax goes simultaneously.

Thus, the tax is paid as income is earned. Thisscheme of advance payment of tax is alsocalled pay as you earn scheme, i.e., pay tax asyou earn income.


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DATES OF PAYMENT OF ADVANCETAX

Advance tax is paid by the all persons, both corporate assessee (company

assessee) and non-corporate assessee (other than non-corporate assessee). Theadvance tax is to be paid in the following installments on the following dates:

For Non-Corporate Assessee

Due Dates Amount of Tax payable

On or before 15 September - not less than 30% of tax payable

On or before 15 December - not less than 60% of tax payable

On or before 15 March - not less than 100% of tax payable

For Corporate Assessee

Due Dates Amount of Tax payable

On or before 15 June - not less than15% of tax payable

On or before 15 September - not less than 30% of tax payable

On or before 15 December - not less than 60% of tax payable

On or before 15 March - not less than 100% of tax payable


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ADVANCE TAXPLANNING

Since, the actual tax and actualincome can be computed only aftercompletion of the year therefore, theincome is estimated at different due

dates mentioned above.

The tax on such estimated incomeis computed and percentage of the

tax as mentioned above is payableby the assessee at different duedates.


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Minimum Alternate Tax

(MAT)

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INTRODUCTION-MAT

Normally, a company is liable to pay tax onthe income computed in accordance with theprovisions of the income tax Act, but the profitand loss account of the company is preparedas per provisions of the Companies Act.

There were large number of companies whohad book profits as per their profit and lossaccount but were not paying any tax becauseincome computed as per provisions of theincome tax act was either nil or negative or

insignificant.


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Why a Minimum Tax?

When looked at from a laymans point ofview, and on preliminary thoughts, theprinciple of application of such a taxseems to be a very reasonable, social andfair principle.

This is because the basic theme or logic ofhaving such a tax seems very appealing topeople who often wonder why they haveto pay a large proportion of their hard

earned moneytowards taxes while manylarge companies who earn millions donot pay any income tax at all

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Minimum AlternateTax

In such case, although thecompanies were showing bookprofits and declaring dividends tothe shareholders, they were not

paying any income tax. Thesecompanies are popularly known asZero Tax companies.

In order to bring such companiesunder the income tax act net,section 115JA was introduced w.e.fassessment year 1997-98.
http://finance.indiamart.com/taxation/corporate_tax/mat.htmlhttp://finance.indiamart.com/taxation/corporate_tax/mat.html


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Minimum Alternate Tax Basic concept

MAT, as the name implies, is the minimum amount of

tax which a company has to pay, even if it is not liableto pay any tax on its regular assessment.

Assesses have to calculate their taxes as per theregular method as well as per the procedure laid downfor MAT computation, and pay the tax which is higher

of the two. Under the regular computation, the person is entitled

to all the deductions, exemptions and incentivesavailable under the provisions of the tax code, such asaccelerated depreciation, investment allowance,rebate for setting up industries in a backward areaetc.

The resultant computed income, therefore, normallywould be much lower than the book profits.

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Minimum Alternate Tax Basic concept

However, for the computation ofincome for the purposes of MAT,there are very few adjustments, ifany, to be made to the book profits.

Most importantly, the method ofdepreciation followed for the purposeof accounts is different from thatconsidered for taxation purposes.

As a result, MAT ensures that everyprofitable company would have topay some tax every year.MBA-

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History of MAT in India

With a view to compel highly profitable companies, paying little or

no tax due to availment of tax incentives, the concept of MAT wasintroduced in 1983 by way of insertion of section 80 VVA of theIncome Tax Act 1961. This section laid down certain restrictions onthe aggregate amount of deductions allowable under theprovisions of the Act.

However, the unabsorbed deductions were allowed to be carriedforward and set off against taxable income in future years. Section80 VVA remained in operation for the assessment years 1984-85to 1987-88.

From 1st April 1988, Section 115 J was introduced to replaceSection 80 VVA. By virtue of this section, in case of a companywhose total TAXABLE income was less than 30 % of the bookprofits, the total income to be charged to income tax was deemed

to be 30 % of the book profits. Section 115 J was in operation forthe assessment years 1988-89 to 1990-91.

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In the year 1991-92, in view ofrationalization of tax structureincluding discontinuance ofcertain investment incentives, itwas felt that there should be nonecessity of retention of theconcept of a Minimum Alternate

Tax, and therefore this sectionwas withdrawn fromassessment year 1991-92MBA-

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After a gap of about six years, theMinimum Alternate Tax was re-

introduced under section 115 JAwith effect from assessment year

1997-98. In the next year, Section 115 JAA was

introduced to give effect to a taxcredit scheme by which the tax paid

under MAT was allowed to be carriedforward for set off against regular taxpayable during the subsequent five

year period.MBA-

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In 2000, the Government had yet another rethink on the

concept of MAT, and section 115 JB was introduced. The introduction of Section 115JB was a conceptual

departure from deemed total income to deemed taxon book profits.

In other words, while the earlier section concentrated on

computation of a minimum deemed income, the newsection laid emphasis on computation of a minimumdeemed tax. Moreover, the provision for allowing creditfor MAT under section 115JAA was discontinued.

In the current year, credit for MAT paid has again been allowed.

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N T C dit


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New Tax CreditScheme

MAT credit will be allowed carry forward facilityfor a period of five assessment yearsimmediately succeeding the assessment yearin which MAT is paid. Unabsorbed MAT creditwill be allowed to be accumulated subject to

the five year carry forward limit. In the assessment year when regular tax

becomes payable, the difference between theregular tax and the tax computed under MATfor that year will be set off against the MATcredit available.

The credit allowed will not bear any interestMBA-

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Rate of MAT The Finance Act, 2000, inserted section 115JB of

the Income-tax Act, 1961, with effect from 1-4-2001, i.e., from the assessment year 2001-02providing for levy of Minimum Alternate Tax oncompanies.

However, the new provision of section 115JB

provides that if tax payable on total income is lessthan 7.5% of book profit, the tax payable under thisprovision shall be 7.5% of book profit

From 1st day of April, 2007 rate is 10% of

book profit From 1st day of April, 2010 rate will be

15% of book profitMBA-

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Direct Tax Planning Advance Tax