Income Tax Ordinance 2001: payment of advance tax on quarterly basis

KARACHI: Taxpayers are liable to pay advance tax against their estimated annual income on quarterly basis under Income Tax Ordinance, 2001.

 

 

The FBR recently updated Income Tax Ordinance, 2001. The law explained advance tax paid by the taxpayers under Section 147 of the ordinance.

Section 147: Advance tax paid by the taxpayer

Sub-Section (1): Subject to sub-section (2), every taxpayer whose income was charged to tax for the latest tax year under this Ordinance or latest assessment year under the repealed Ordinance other than –

(b) income chargeable to tax under sections 5, 6 and 7;

(c) income subject to deduction of tax at source under section 149; and

(d) income from which tax has been collected under Division II or deducted under Division III or deducted or collected under Chapter XII and for which no tax credit is allowed as a result of sub-section (3) of section 168, shall be liable to pay advance tax for the year in accordance with this section.

Sub-Section (2): This section does not apply to an individual where the individual’s latest assessed taxable income excluding income referred to in clauses (a), (b), (ba), (c) and (d) of sub-section (1) is less than one million rupees.

Sub-Section (3): omitted

Sub-Section (4): Where the taxpayer is an association of persons or a company, the amount of advance tax due for a quarter shall be computed according to the following formula, namely:-

(A x B/C) –D
Where –

A is the taxpayer’s turnover for the quarter:

Provided that where the taxpayer fails to provide turnover or the turnover for the quarter is not known, it shall be taken to be one-fourth of one hundred and ten percent of the turnover of the latest tax year for which a return has been filed;

B is the tax assessed to the taxpayer for the latest tax year.

“Explanation.- For removal of doubt it is clarified that tax assessed includes tax under sections 113 and 113C.”

C is the taxpayer’s turnover for the latest tax year; and

D is the tax paid in the quarter for which a tax credit is allowed under section 168.

“(4A) Any taxpayer including a banking company who is required to make payment of advance tax in accordance with sub-section (4), shall estimate the tax payable for the relevant tax year, at any time before the second installment is due. In case the tax payable is likely to be more than the amount that the taxpayer including a banking company is required to pay under sub-section (4), the taxpayer including a banking company shall furnish to the Commissioner on or before the due date of the second quarter an estimate of the amount of tax payable by the taxpayer including a banking company and thereafter pay fifty per cent of such amount by the due date of the second quarter of the tax year after making adjustment for the amount, if any, already paid in terms of sub-section (4). The remaining fifty per cent of the estimate shall be paid after the second quarter in two equal installments payable by the due date of the third and fourth quarter of the tax year.”

(4AA) Tax liability under sections 113 and 113C shall also be taken into account while working out payment of advance tax liability under this section.

[4B] Where the taxpayer is an individual having latest assessed income of one million rupees or more as determined under sub-section (2), the amount of advance tax due for a quarter shall be computed according to the following formula, namely: –

“(A/4) – B

Where –

A is the tax assessed to the taxpayer for the latest tax year or latest assessment year under the repealed Ordinance; and

B is the tax paid in the quarter for which a tax credit is allowed under section 168, other than tax deducted under section 149.

Sub-Section (5): Advance tax is payable by an individual to the Commissioner—

(a) in respect of the September quarter, on or before the 15th day of September;

(b) in respect of the December quarter, on or before the 15th day of December;

(c) in respect of the March quarter, on or before the 15th day of March; and

(d) in respect of the June quarter, on or before the 15th day of June.

(5A) Advance tax shall be payable by an association of persons or a company to the Commissioner —

(a) in respect of the September quarter, on or before the 25th day of September;

(b) in respect of the December quarter, on or before the 25th day of December;

(c) in respect of the March quarter, on or before the 25th day of March; and

(d) in respect of the June quarter, on or before the 15th day of June.

(5B) Adjustable advance tax on capital gain from sale of securities shall be chargeable as under, namely:—

Where holding period of a security is less than six months: 2% of the capital gains derived during the quarter.

Where holding period of a security is more than six months but less than twelve months: 1.5% of the capital gains derived during the quarter

Provided that such advance tax shall be payable to the Commissioner within a period of twenty-one days after the close of each quarter:

Provided further that the provisions of this sub-section shall not be applicable to individual investors.

Sub-Section (6): If any taxpayer who is required to make payment of advance tax under sub-section (1) estimates at any time before the last installment is due, that the tax payable by him for the relevant tax year is likely to be less than the amount he is required to pay under sub-section (1), the taxpayer may furnish to the Commissioner an estimate of the amount of the tax payable by him, and thereafter pay such estimated amount, as reduced by the amount, if any, already paid under sub-section (1), in equal installments on such dates as have not expired:

Provided that an estimate of the amount of tax payable shall contain turnover for the completed quarters of the relevant tax year, estimated turnover of the remaining quarters along with reasons for any decline in estimated turnover, documentary evidence of estimated expenses or deductions which may result in lower payment of advance tax and the computation of the estimated taxable income of the relevant tax year:

Provided further that where the Commissioner is not satisfied with the documentary evidence provided or where an estimate of the amount of tax payable is not accompanied by details mentioned in the first proviso, the Commissioner may reject the estimate after providing an opportunity of being heard to the taxpayer and the taxpayer shall pay advance tax according to the formula contained in sub-section (4).

(6A) Notwithstanding anything contained in this section, where the taxpayer is a company or an association of persons, advance tax shall be payable by it in the absence of last assessed income or declared turnover also. The taxpayer shall estimate the amount of advance tax payable on the basis of quarterly turnover of the company or an association of persons, as the case may be, and thereafter pay such amount after, —

(a) taking into account tax payable under sections 113 and 113C as provided in sub-section (4AA); and

(b) making adjustment for the amount (if any) already paid.

Sub-Section (7): The provisions of this Ordinance shall apply to any advance tax due under this section as if the amount due were tax due under an assessment order.

Sub-Section (8): A taxpayer who has paid advance tax under this section for a tax year shall be allowed a tax credit for that tax in computing the tax due by the taxpayer on the taxable income of the taxpayer for that year.

Sub-Section (9): A tax credit allowed for advance tax paid under this section shall be applied in accordance with sub-section (3) of section 4.

Sub-Section (10): A tax credit or part of a tax credit allowed under this section for a tax year that is not able to be credited under sub-section (3) of section 4 for the year shall be refunded to the taxpayer in accordance with section 170.

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