India: Voluntary Reporting of Estimated Current Income & Advance Tax Liability

October 10, 2017

The Central Board of Direct Taxes (hereinafter referred to as the ‘CBDT’) has proposed to create a mechanism for self-reporting of estimates of current income, tax payments and advance tax liability by certain taxpayers (companies and tax audit cases) on voluntary compliance basis. The proposed reporting mechanism is sought to be created by way of inserting a new Rule 39A and Form No. 28AA in the Income-tax Rules, 1962.

A taxpayer who is liable to discharge part of its tax liability by way of advance tax has to bear additional burden of interest for default of advance tax, in case total advance tax paid for the year falls short of the assessed tax by ten percent or more. This interest is levied as per the provisions of Section 234B of the Income-tax Act, 1961. Such taxpayers are further liable to pay interest for deferment of advance tax, in case any quarterly instalment of advance tax paid falls short of the prescribed percentage of total advance tax paid. This interest is levied in accordance with the provisions of section 234C of the Act.

CBDT stated that it is of utmost importance for such taxpayers to arrive at a reasonably accurate estimate of their current income and advance tax liability, so that the additional burden on account of interest for default/deferment of advance tax can be avoided.

Under the present mechanism, taxpayers have to only pay advance tax to the CBDT on income tax payable for the whole financial year in four instalments — June 15, September 15, December 15 and March 15 but they are not required to provide estimates of income to the I-T department. As per the draft provisions, a taxpayer being a company and a person (other than a company), to whom the provisions of section 44AB are applicable shall furnish an intimation of estimated income and payment of taxes as on 30th September of the previous year, on or before 15th November of the previous year.


According to CBDT, a continuous flow of tax revenues throughout the year is critical for the Government so as to meet various budgetary allocations such as welfare schemes, infrastructure development, defence expenditure etc. A reliable and advance estimate of tax revenues for the year would also provide much needed perspective for planning and prioritizing the Government expenditure.

Although, the Government by this approach tends to create tax transparency by creating a systematic framework, the implementation of the said proposal will add on to the already present compliances resulting in over-burdening the taxpayers requiring them to present a detailed estimate of taxable income.

Additionally, the scheme requires the taxpayer to provide the details of turnover, profits, etc. It is worthwhile to mention that determination of the net profit for the year is difficult to ascertain based on the uncertain factors.

The proposed scheme also requires the reasons to be specified by the taxpayer if the estimated advance-tax payment for the previous year is less than the advance tax paid during the preceding previous year. It seems unreasonable to inquire explanation to various hurdles being faced by the taxpayer attributable to the economic slowdown the country is undergoing presently.

It is advisable to adopt for stricter mechanisms against the tax evaders rather than increasing the liabilities of the honest taxpayer.

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