Individual advance taxpayers shine in December quarter

There has been a surge in advance tax payments by individuals in the December 2016 quarter and the reason is believed to be the note ban. An analysis of advance tax collections at the end of the third quarter shows that tax paid by the top 20 individuals soared in the range of 60% to 150% year-on-year (y-o-y). 
 

According to the data, the total advance tax collection from individuals till December 2016 was Rs 46,331 crore, an increase of 38% y-o-y. 

Notably, the advance tax paid by some Bollywood actors saw a huge jump. For instance, stand-up comedian Kapil Sharma paid 150% more tax compared with the same period last year. Similarly, Amitabh Bachchan’s advance tax outgo increased 94%. Salman Khan and Shah Rukh Khan paid 60% and 12% more,  respectively. Corporate lawyer Zia Mody is also among the top tax payers with a tax outgo of Rs 9 crore, an increase of 85% y-o-y. 

Apart from existing taxpayers, the advance tax outgo has also seen new entrants during the quarter as a lot of them have filed advance tax under Section 234C of the Income Tax Act. According to the I-T rules, an individual can pay tax dues by paying one% simple interest on the amount of tax outstanding. The current advance tax payment schedule for an individual is 15%, 45%, 75% and 100% (cumulative) for the full financial year’s income on the 15th of each quarter-ending month. 

Tax officials say these new entrants are mostly small businessmen and traders who have not been reporting income as a majority of their revenue was derived in cash. Besides, the tax department suspects these individuals could have chosen the route to exchange the old currency denominations. 

“Due to demonestisation, people had to deposit old currency notes with banks and during this quarter, a lot of individuals are learnt to have deposited their undisclosed income in their accounts resulting in a surge in their income and, hence, the significant increase in their tax liabilities,” said a senior Income tax official. 

Startled by the sudden spike, taxmen are currently identifying inconsistencies in tax filings as this is the first time there is such a huge hike in the numbers. “Those taxpayers whose income/earnings do not match with their advance tax payments would be liable for prosecution if they are unable to explain the reasons,” said the official. A showcause notice would be sent to these after December 30, he added. 

Data suggest that Mumbai, which alone contributes 33% to the total tax collection, reported a jump of 24% in the individual advance tax outgo. Unlike previous quarters, the surge is driven by professionals such as doctors and chartered accountants, say tax authorities. 

Tax experts believe the escalation in numbers could also be on account of increase in cashless transactions.  “Sheer proportions of sales are now happening by formal means following demonetisation. Another aspect could be under-reporting of income by these individuals in the past.  Additionally, this spurt would come from past income, which is being reported now since they have to exchange the old currency note with new ones,” said Sudhir Kapadia, national tax leader, EY.