Advance Tax, TDS and Self-Assessment Tax for Companies

Understand Advance Tax, TDS and Self-Assessment Tax

Key rules to remember

Self-assessment tax payable

Tax on declared total income − (advance tax and other tax already paid + TDS/TCS + tax relief claimed + tax credit claimed) + tax or interest payable under section 391(2) + interest + fee

Section 266(1) and (2). Pay it before furnishing the return and attach proof of payment. The amounts taken into account include tax already paid, TDS/TCS, relief under sections 157, 159 and 160, and the tax credits under section 206(2)(e) to (h) and 206(3) and (4) named in section 266(2)(f). Section 266(2)(g) also takes into account any tax or interest payable under section 391(2).

Assessed tax (for interest on advance tax default)

Tax on total income − TDS/TCS − relief under sections 157, 159, 160 − tax credit under section 206

Section 424(2). Advance tax paid is not deducted in this computation. Additional income-tax under section 267 is excluded (section 424(3)).

90% test

Interest arises if no advance tax is paid, or if advance tax paid < 90% of assessed tax

Section 424(1)(a) and (b). This applies to an assessee liable to pay advance tax.

Interest for advance tax default

Interest = 1% × number of months (part of a month counts as a full month) × base amount

Section 424(1). Simple interest. The period runs from 1 April following the tax year. The base is the full assessed tax if no advance tax was paid, or the shortfall (assessed tax − advance tax paid) if the 90% test fails.

Interest period end date

From 1 April following the tax year to the date of determination of total income under section 270(1), or to completion of regular assessment

Section 424(1)(i) and (ii). If tax is paid earlier, interest on that part runs only up to the date of payment (section 424(4)).

Order of adjustment of a short payment

Fee first, then interest, then tax

Section 266(3). Any unpaid balance makes the assessee an assessee in default (section 266(8)).

Advance tax by order of Assessing Officer

Specified sum = higher of (total income of latest regularly assessed year) and (total income returned for any later tax year)

Section 407(1) and (3). The order can be passed up to the last day of February of the financial year (section 407(2)).

How to solve Advance Tax, TDS and Self-Assessment Tax questions

1. 1Compute the tax on the total income, including surcharge and cess as the question gives. Leave out additional income-tax under section 267 when working out interest under section 424.
2. 2List the credits: TDS or TCS, foreign tax relief, and section 206 tax credits. Deduct these to get the assessed tax.
3. 3Check whether the company was liable to advance tax. If no advance tax was paid, or less than 90% of assessed tax was paid, section 424 interest applies.
4. 4Fix the interest base. Use the full assessed tax if nothing was paid. Use the shortfall (assessed tax − advance tax) if the 90% test fails.
5. 5Count the months from 1 April after the tax year to the date tax is paid under section 266 or total income is determined. Count a part month as a full month. Interest = 1% × months × base.
6. 6Add any interest under other provisions and any fee. Add these to the unpaid tax to get the self-assessment amount payable before filing.
7. 7If a part-payment is given, adjust it in the order fee, interest, tax. Treat any unpaid balance as default under section 266(8).
8. 8State the conclusion in one line: the amount payable, the section relied on, and the proof of payment that must go with the return.

Quickest way: Three-line check for interest and self-assessment tax

Common mistakes in Advance Tax, TDS and Self-Assessment Tax

• Deducting advance tax while computing assessed tax for the 90% test

  Students think any amount already paid should reduce the figure.

  Fix: Section 424(2) deducts only TDS/TCS and the reliefs and credits listed there. Advance tax is compared with the assessed tax, not deducted from it.

• Counting the interest months from the end of the advance tax instalment date or from the due date of the return

  Students mix up section 424 interest with late-filing interest or instalment deferment interest.

  Fix: For section 424 the period starts on 1 April following the tax year. It ends on the date of determination of total income under section 270(1) or completion of regular assessment, or the date tax is paid under section 266.

• Counting a part of a month as zero

  Students prorate days in the usual simple-interest way.

  Fix: The section charges 1% for every month or part of a month. A part month counts as a full month.

• Applying interest on the full assessed tax when advance tax was paid but fell below 90%

  The two cases in section 424(1) look alike.

  Fix: If nothing was paid, the base is the assessed tax. If something was paid but it is under 90%, the base is only the shortfall.

• Adjusting a part-payment first against tax

  Students think the tax is the primary liability.

  Fix: Section 266(3) adjusts a short payment first to fee, then interest, and only the balance to tax.

• Treating self-assessment tax as payable after filing the return

  Students confuse it with tax paid after an assessment demand.

  Fix: Section 266(1) requires payment before furnishing the return, and the return must be accompanied by proof of payment.

Worked examples