Mismatch in advance tax estimates for Q3

Variance in numbers delays process of revenue collection for Dec quarter

The Central Board of Direct Taxes (CBDT), the apex direct tax body, is facing challenges in compiling advance tax collections of the December 2017 quarter. Taxpayers had to make advance tax payments by December 15. According to sources, the tax department’s estimates for the top 100 companies for the third quarter were not matching the amounts deposited by them.

“During the computation of the collection, a notable variation was observed. We are still in the process of matching estimates with actual deposits, hence the delay in the whole process,” said a senior income-tax (I-T) official privy to the development.  

Typically, the taxman calls up chief financial officers of companies and enquires about how much advance tax they would pay in the quarter and also persuade them to make the payment in accordance with the prescribed rules. “Every quarter we witness a minor difference of 5-7 per cent in the total advance tax collection. However, this time it was seen at between 15 per cent and 20 per cent.” Refusing to give the collection figures of the quarter as the I-T department was still in the process of calculating the data, a tax officer said that the figures committed by the companies were lower than the advance tax they deposited.  

Seventy-five per cent of the estimated annual income tax must be paid by December 15 of every year.

Accordingly, before the due date, companies give an informal estimation or commitment to the tax department of the advance tax instalment in that particular quarter.  

“Such commitment by top advance taxpayers enables the tax department to project revenue receipts more accurately,” said one official cited above.

“Sometimes it is more of a technical glitch when such variances in numbers occur,” said a tax expert requesting anonymity. Explaining the process, he said many persons tend to pay advance tax on the last day (deadline for the payment). Such payments are usually made by cheque and the clearing process could take a day or two more. However, it was observed on various occasions that the computerised processing centre was not equipped for this particular practical issue. While processing any such payment, the processing centre picks up the date of payment from the I-T systems, which record the cheque clearance date and not the payment date.

According to the CBDT, an amount of Rs 1.77 lakh crore was received as advance tax up to September 30, a rise of 11.5 per cent over the advance tax payments of the corresponding period of last year. The April-September 2017 growth in advance tax, however, was slower than a year ago, when it had recorded an increase of 12.1 per cent. The numbers for the third quarter are not yet available. Sources said that there could be marginal growth in collections.

To deal with such variances, the CBDT had recently proposed a formal, self-reporting mechanism for estimates of the advance tax liability. However, the proposal was widely criticised by industry players and corporates as they believe it will increase the compliance burden.