Advance tax is a method of paying taxes in four instalments during a year instead of lumpsum payment at the end of the financial year.

Reflecting the economic contraction in the pandemic-hit first quarter of the current fiscal year, gross direct tax collections so far for the June quarter were a nearly third lower than the year-ago period at Rs 1.38 lakh crore. Corporate advance tax collections were down 79% on year in the period while advance payments of personal income tax were lower by 65%.

The total collections of advance taxes, a mechanism used by the large individual and corporate taxpayers, were just Rs 11,714 crore till the June 15 deadline, less than a quarter of Rs 48,917 crore collected in the year-ago period.

Apart from Covid-19 lockdown which brought economic activities to a grinding halt in early April, the collections in the current quarter are also impacted by the lower rates for corporate tax and minimum alternate tax (MAT) announced last year.

The headline corporate tax rate was cut last year to 22% from 30% for firms not availing any exemptions. Moreover, even for firms opting for the older regime, MAT was cut to 15% from 18.5% in September last year. While the new rates were applicable for the whole of FY19, the first and second advance tax instalments in FY20 were based on older rates as tax cut announcement was made after the deadlines passed.

Advance tax is a method of paying taxes in four instalments during a year instead of lumpsum payment at the end of the financial year. It is applicable to taxpayers whose tax liability in a year is above a certain threshold. The first instalment of 15% of advance tax is payable by June 15, which is followed by another 30% by September 15, an additional 30% by December 15 and the final 25% by March 15.

In FY21, the first month of April was under complete lockdown, which has been progressively eased throughout May and first week of June. However, the resumption of business activity is still far from normal as Covid-19 cases have continued to surge in important economic pockets of Mumbai and Delhi. The migrant workers’ return home in early May has also delayed a pick-up in business activity.

The pandemic has impacted GST collection as well with government sources saying that the gross mop-up was just about 45-50% of the monthly target of Rs 1.21 lakh crore in April-May.

In FY20, the direct tax collection had fallen by 7.8% to Rs 10.37 lakh crore — a decline in collection for the first time in at least two decades. The budget estimate for direct tax collection in the current fiscal is Rs 13.2 lakh crore, which would require a growth rate of 27% from the actual collections in FY20, clearly an impossible task.