Demonetisation effect: Smaller firms help shore up advance tax numbers

While advance corporation tax collections from large companies have been muted in the third quarter, robust tax payments by smaller firms may have made up for the shortfall. 

Advance corporation tax posted a 10% growth in the first three quarters, against 8% in the first half 

of the financial year, said an official. 

This meant that growth in tax numbers was more than 10% in the third quarter (up to December 15). The growth in the first three quarters of the previous financial year was only seven per cent, the official added.

Small and medium players may have reported higher earnings in their books to explain large unaccounted cash in old notes. 

“It is early to predict whether the slight improvement seen in growth is on account of demonetisation. But, definitely, smaller companies may have reported higher earnings to accommodate large unaccounted cash. It is yet to be analysed. The advance tax trend of large companies has, however, seen no change,” the official noted. 

Advance tax means paying tax as and when the money is earned, rather than waiting for the end of the financial year.

A moderate pick-up in advance tax collections from large companies suggests the corporate sector is not projecting a significantly high growth for the current financial year. 

Among large companies, it was Reliance Industries and the three oil marketing companies — Bharat Petroleum, Hindustan Petroleum and Indian Oil — which paid high taxes. 

If these four companies are excluded from the combined figure of 43 firms, the combined tax payment of the remaining 39 companies is up 3.7% year-on-year. 
 

Advance tax collections in the fourth quarter, too, might see an improvement. 

The overall growth in advance tax, including personal income tax, stood at 14% till December 15. There has been a sharp 37% growth in personal income tax collection, largely because of the change in tax payment schedule this financial year.

A total of 75% of advance tax needs are to be paid by an individual by December 15 now, against the requirement of 60% till last year. 

The government increased income tax compliance burden on individual taxpayers by making advance tax payable from June 15 instead of September 15 earlier. Now, individuals have to estimate income tax payable for the full financial year and pay 15% of that in the first quarter. Defaulters will have to pay 1% interest for each month of delay.