Section 147 – Advance Tax paid by the taxpayer

This section contains ten sub-section while following section references mentioned in Section 147

• Section 5-7 Final Taxation
• Section 113 Minimum Tax
• Section 113C Alternative Corporate Tax
• Section 149 Salary
• Section 168 Credit for Tax collected and deducted
• Section 170 Refund

Let’s begin to understand the Advance Tax provision and section 147 of Income Tax Ordinance, 2001 through 5W’s and How.

What is Advance Tax?

As per ordinance, advance tax is not defined in definition; but likewise, other advance tax provision especially mentioned in Section 236 where the payment party deduct advance tax of other parties.

Here, taxpayer submit an amount of tax on quarterly basis; calculated by formula mentioned in sub section 4 & 4B of Section 147.

Why Advance Tax?

Answer of this question has two perspective; to facilitate government and to feel free from burden of lump sum tax to the taxpayer. If taxpayer pay whole year admitted tax collectively. It affects its cashflow. Therefore, government demanded advance income tax on quarterly basis. Being a developing country and our economy facing devaluation of currency which impact the revenue collection in comparison of internationally accepted currency $. Our government major portion of expenditure goes on interest & principal payment of international loans.  

Who are liable to pay Advance Tax?

In sub section 1 of Section 147, AOP & Companies oblige to pay advance tax regardless of turnover, but one thing clearly stated that if these entities have taxable income which start from four hundred thousand in case of Association of Person.

Subsection 1 of Section 147

Every taxpayer 1 [whose income was charged to tax for the latest tax year under this Ordinance or latest assessment year under the repealed Ordinance] other than –

2 [ ]

(b) income chargeable to tax under sections 5, 6 and 7; 3 [ ]

(c) income subject to deduction of tax at source under section 149; 4 [and] 5 [ ]

(d) income from which tax has been collected under Division II or deducted under Division III6 [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.

Subsection 2 exempt those individuals whose taxable income is less than million rupees in latest tax year or assessment year.

Subsection 2 of Section 147

This section does not apply to an individual where the individual’s 7 [] latest assessed taxable income excluding income referred to in clauses (a), (b), 8 [(ba),] (c) and (d) of sub-section (1) is less than 9 [ 10[ 11[one million] ] rupees.

How to calculate Advance Tax Liability?

Subject to subsection 4 & 4B describe the formula to calculate advance tax liability for (AOP & Company) and Individuals respectively.

Subsection 4 of Section 147

 [(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 4 [:] 5 [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 6 [.] 7

[“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[ ].]

Subsection 4B of Section 147

[(10[4B]) Where the taxpayer is an individual 11[ ] having latest assessed income of 12[ 13[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 1 [ ].]

When to pay advance tax under section 147?

Time period has been described in sub section 5 & 5A of Section 147 about the due date of payment of advance tax.

Individuals Advance Tax

Subsection 5 of Section 147

(5) Advance tax is payable by 2 [an individual 3 []] to the Commissioner—

(a) in respect of the September quarter, on or 4 [before] the 5 [15th day of September];

 (b) in respect of the December quarter, on or before the 6 [15th day of December];

 (c) in respect of the March quarter, on or before the 7 [15th day of March]; and

 (d) in respect of the June quarter, on or before the 8 [15th day of June].

AOP & Company Advance Tax

Subsection 5A of Section 147

 [(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.]

Where to pay Advance Tax?

After calculation of Advance tax, simply go to e.fbr.gov.pk and make a challan and submit the tax liability as per your convenient option.

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Frequently Asked Questions

Is Advance tax liability applicable on first year of business setup?

Yes, in case of company & AOP advance tax liability created after incorporation of company or establishment of Association of Person.

Subsection 6A of Section 147

[(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 3 [sections 113 and 113C] as provided in sub-section (4AA); and

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

Are salaried Individuals liable to pay advance tax?

This provision doesn’t applicable to salaried person as there tax withhold by the employer on monthly basis under section 149.

How do I know my company advance tax deposit frequency?

Advance tax collection currently in Pakistan on quarterly basis.