Direct Tax Planning Advance Tax
Transcript of 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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History of MAT in India
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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History of MAT in India
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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History of MAT in India
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
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