Section 405 — Computation of advance tax. Successor to s.209 of the 1961 Act.
Section 405 is in Chapter XIX — Collection and Recovery of Tax, which runs from section 390 to section 430.
Sub-section (1) gives the formula for advance tax payable in a financial year by an assessee — under section 404, on his own accord under section 406, or in pursuance of an order under section 407. Subject to sub-section (2), A = B – C, where A is the advance tax payable; B is income-tax on the specified sum calculated at the rates in force in that financial year, "specified sum" carrying the meaning assigned in section 406 or 407; and C is income-tax deductible or collectible at source during that financial year from any income, subject to two conditions. Clause (a): that income is computed before allowing any deduction admissible under the Act and has been taken into account in computing the specified sum. Clause (b): the person responsible for deducting tax has paid or credited the income after deduction, or the person responsible for collecting has received or debited it after collection.
Sub-section (2) deals with net agricultural income where the Finance Act of the relevant year requires it to be taken into account. For an order under section 407(1) and (4), it is the amount taken into account for charging income-tax on the specified sum under section 407(3) and (6); in any other situation, it is the net agricultural income as estimated by the assessee for the tax year.
Advance tax is a payment on an estimate, and the estimate has to be reduced by tax the same income will already suffer at source, or the same income would be paid on twice within the year. The conditions in clause (b) confine that reduction to tax actually deducted or collected rather than tax that ought to have been, so a payer's default does not become the recipient's shortfall.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Advance tax payable in a financial year | A = B – C | B is income-tax on the specified sum at the rates in force in the financial year; C is tax deductible or collectible at source that year, but only where clauses (a) and (b) are both satisfied | Sub-section (1) |
The formula looks arithmetical but the whole difficulty is in C. Tax at source reduces advance tax only where the income was taken into account in the specified sum and the deductor or collector has actually acted, so a payer's failure to deduct converts into the recipient's advance tax liability rather than remaining the payer's problem alone. Clause (a) also measures that income before any admissible deduction, which raises C rather than lowering it. Sub-section (2) removes discretion over net agricultural income once an order under section 407 exists.
A company estimates a specified sum of Rs 5 crore under section 406, and income-tax on it at the rates in force is Rs 1.5 crore. Rs 20 lakh has been deducted at source by customers on receipts taken into account in that Rs 5 crore, so advance tax is Rs 1.3 crore. A further Rs 5 lakh that a customer was liable to deduct but credited the income without deducting cannot be subtracted, because clause (b)(i) is not satisfied — the company bears that amount as advance tax.
In every advance tax instalment computation, in the estimate an assessee files or revises on his own accord under section 406, and in an order of the Assessing Officer under section 407 requiring payment on a specified sum.
A = B – C
such income is computed before allowing any deduction admissible under this Act and has been taken into account in computing the specified sum
the person responsible for deducting tax has paid or credited such income after deduction of tax
See the full 1961 to 2025 concordance.
