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Taxmen bullish as advance tax deadline nears
March, 13th 2009

India Inc may take more time to recover from the economic slowdown, but the income tax department is optimistic that the fourth tranche of advance tax payments, ending on March 15, will be healthier than the previous one.

The department expects to net more than the Rs 45,000 crore it collected in the December quarter, but admits that it would not be as high as the 22% growth in advance tax receipts recorded in the first half of this fiscal.

While companies are yet to begin paying their advance tax, we expect it to be marginally better than the collections in the third quarter, an official of the Central Board of Direct Taxes said. Most companies havent paid the advance tax due on March 15 as yet. This is because they are now mandated to pay taxes electronically, which allows them to withhold payment till the eve of the deadline.

We could see an upside in the tax paid by infrastructure and automobile companies as well as firms that delayed their advance tax payments in earlier instalments to finance their internal requirements, said Amitabh Singh, tax partner, Ernst & Young.

Bogged down by the global credit crunch, lowering demand and cooling prices over the last six months, India Incs profitability has been severely dented, which has, in turn, reduced its tax outgo.

Corporate India had paid Rs 45,400 crore as the third tranche of advance tax by December 15, 2008, much lower than the Rs 54,900 crore companies shelled out in the third tranche a year before. Companies have to pay 30% of their estimated tax liability for the fiscal in the third instalment.

The exchequer netted about Rs 1,13,000 crore as corporate advance taxes until the December instalment, marginally lower than the Rs 1,16,000 crore it earned in the same period in 2007.

Though the tax authorities expect a slight improvement in advance tax inflows, analysts say the department may be a tad too optimistic. The industrial output situation, barring a few sectors, is still grimthe index of industrial production shrank for the second month in a row in January 2009. Moreover, companies pay only 25% of their annual tax bill in the March instalment, compared to 30% in the December instalment.

The way things stand today, I dont think corporate advance tax payments in March would be substantially different from December, said Divya Baweja, partner, BMR Advisors. CBDT,however, remains confident of achieving its revised targets.

Faced with a steep shortfall of over Rs 86,000 crore in direct tax collections after February, the department is hoping that advance taxes would come as a saviour. Till February 2009, net direct tax collections grew by 11.27% to Rs 2,58,902 crore. But the figure is just 76.37% of the full year target of Rs 3,45,000 crore for 2008-09.

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