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Budget 2016 ups tax compliance burden on individuals: advance tax due 3 months earlier now

The current advance tax payment schedule for a company is 15 per cent, 45 per cent, 75 per cent and 100 per cent (cumulative) of income tax payable on the full financial year's income to be paid by 15th June, 15th September, 15th December and 15th March, respectively. Till now, individuals liable to pay advance tax, had to pay 30 per cent, 60 per cent and 100 per cent (cumulatively) of tax payable on the full fiscal's income by 15 September, 15 December and 15 March, respectively. An individual with a tax liability of Rs 10,000 or more in a financial year has to pay advance tax in that year as per current income tax law. The budget proposes to do away with the separate advance tax payment schedule for individuals and instead, impose the same schedule as that for companies on the individuals as well.

"Aligning advance tax schedule for individual tax payers is an accelerated revenue collection measure and will be an administrative burden for tax payers. There will be another compliance date to remember and missing it will mean having to pay interest. So instead of 3 there will be 4 advance tax instalments with the first date being June 15 followed by September 15, December 15 and March 15 as dates by which advance tax should be paid", says Sonu Iyer, Partner & National Leader - People Advisory Services, EY.

Impact of proposed change
For taxpayers who calculate and pay advance tax based on estimated income, the adverse impact of this proposal would increase with increase in variation (quantum as well as degree) of actual income from estimated and vice versa. For tax payers, who are unable to take out time from their busy schedules (a substantial number fall in this category) to calculate and pay advance tax, the adverse impact would be in the form of a significant increase in in terest payable on the deferment of advance tax payment.

In practice, even now a majority find it very tedious to calculate and pay advance tax and therefore a large number skip the first or the first two advance tax payment dates and pay only by the third. Therefore, advancing the payment schedule by one quarter will increase compliance burden for them.

"The general feeling is that it (the budget proposal) has increased the tax compliance burden for the smaller tax payers'', says Mr Sanjay Sood, a Delhi-based practising chartered accountant.

"The change in advance tax payment schedule for individuals as proposed in Budget 2016 will increase the compliance burden for them. Practically most people do not pay the first few instalments because they find it difficult to estimate their income for the full year which means that the interest payment on deferment of advance tax will increase for them. Individuals may also have to bear the unnecessary burden of additional professional fee if he has engaged a professional (chartered accountant) and he increases the fee due to extra compliance, " adds practising chartered accountant R K Malhotra of Rajinder Kumar Malhotra & Co.

There is a small concession though: As per the proposed amendment, even if an individual pays 12 per cent and 36 per cent of the total tax payable for the full fiscal by June 15 and Sept 15, instead of the full 15 per cent and 45 per cent, then he would not be liable to pay interest of 1 per cent on the shortfall in advance tax. However, the real problem in case of advance tax is the fact that a substantial number of people are simply unable to find the time to properly estimate their income for for the full financial year multiple times.

Advance tax calculation
The advance tax required to be paid by a particular date is a percentage of the total tax that is expected to be payable for the full financial year. Therefore, in order to pay advance tax by a given date, an individual tax payer will have to: (1) Accurately estimate his expected income for the full year; (2) Calculate the tax that would be payable on this estimated income; (3) Then pay advance tax so that the specified percentage of the total tax payable is paid by the dates stipulated.

If the stipulated amount, say 15 per cent, is not paid by June 15, then the tax payer will have to pay a simple interest @ 1 per cent of shortfall in actual advance tax payable per month for every month that the advance tax has been delayed under Section 234C of the Income Tax Act.