Advance tax

Ordinarily you would work out your tax after the year is over, when you file your return. Advance tax turns that around: it makes you estimate your tax during the year and pay it in step with your income, rather than waiting until the end.

The workbook's rule for who must pay it: "A taxpayer whose tax liability on the total taxable income from all the sources during the financial year exceeds INR 10,000 is liable to pay Advance Tax."

Because income from Exchange Traded Interest Rate Derivatives is treated as normal, non-speculative business income, taxable at ordinary slab rates, a trader whose total tax liability for the year — from ETIRD trading and every other source combined — crosses that Rs 10,000 line must pay advance tax.

The Rs 10,000 threshold is measured on the taxpayer's total tax liability across all sources of income for the financial year, not on ETIRD trading income alone. A salaried employee who also trades ETIRD is judged on the combined liability.

The workbook gives one specific relief for a particular group of ETIRD traders: those who opt for the presumptive taxation scheme under Section 44AD (available where total turnover does not exceed Rs 2 crore). For them, the workbook states they "can pay 100% of the advance tax in a single instalment up to 15th March of the relevant financial year." That is a real simplification — instead of estimating and paying advance tax across the year in stages, a presumptive-scheme filer can settle the entire amount in one payment, due by 15 March.

The workbook does not set out the ordinary multi-instalment advance-tax payment schedule (the staged percentages that apply to assessees generally through the year) anywhere in this chapter — only the Rs 10,000 trigger and the single-instalment relief for Section 44AD filers. Where the workbook is silent on the general schedule, that detail should not be assumed here.

Mr Deshpande trades Exchange Traded Interest Rate Derivatives through the year and also draws a salary. His ETIRD trading turnover for the year is Rs 1,60,00,000 — comfortably under the Rs 2 crore ceiling for Section 44AD — so he opts for the presumptive scheme, declaring profit at 6% of turnover (all his settlements being digital): 6% × 1,60,00,000 = Rs 9,60,000 presumed business income.

Added to his salary income, his total tax liability for the year works out to Rs 1,85,000 — well above the Rs 10,000 threshold — so he is liable to pay advance tax. Because he has opted for the Section 44AD presumptive scheme, he does not need to estimate and pay this liability in stages through the year. He can instead pay the entire Rs 1,85,000 in one instalment, any time up to 15 March of that financial year, and that single payment satisfies his advance tax obligation in full.

Chapter 9 (Accounting and Taxation of IRD), section 9.2 (Taxation of Exchange Traded Interest Rate Derivatives), introduces the Rs 10,000 advance tax threshold immediately after establishing that ETIRD income is non-speculative business income; section 9.2.2 (Scheme of Taxation) gives the 100%-by-15-March single-instalment relief for Section 44AD filers. Expect a question on the Rs 10,000 threshold and on the 15 March single-instalment rule for presumptive filers.

• Rs 10,000 is measured on total tax liability from all sources for the year, not on ETIRD income alone.
• The 100%-in-one-instalment-by-15-March rule applies only to those who have opted for the Section 44AD presumptive scheme — it is not a general advance tax relief available to every ETIRD trader.
• ETIRD income is non-speculative business income, taxed at slab rates like any other business income — this is what makes advance tax apply to it in the first place.
• The workbook does not give the general staged advance-tax payment schedule that applies outside the presumptive-scheme relief — do not reach for a percentage schedule this chapter does not state.