Simple steps for calculation of Advance tax – For Companies, Firms & Other business Entities

For a company whose accounts are reliable and up to date as on date of calculation
Step-1- Just see the P&L up to the previous month or previous day (from date of calculation),if the accounting is complete/up to date. For Ex: Accounts upto 28th Feb’2014 can be seen for calculation Advance Tax for March’14.
Step-2 See if all entries are taken up to that month/date i.e whether the accounting is complete. If not then take entries into account which are not yet entered.
Step-3 On the basis of figures till last month or previous day (based on the date of calculation), project the figures for the current month so that P&L A/c for upto the period required for calculation is made.
Some items can be taken on actual or close to actual figures while projecting the figures for the month like:
a)      Electricity
b)      Water
c)      Salaries and other employee based expenses
d)     Telephone
e)      Other Recurring Expenses which occur every month.
f)       Depreciation should be calculated on actual basis based on the rates applicable.
Other items of expenses can be projected on a percentage basis seeing total percentage of indirect and direct expenses as in the last year.
Sales and purchases can be forecasted based on the average of the monthly figures of previous months and also look at the previous year average for the final forecast. Purchase percentage generally should remain within a range on a year on year basis.
Step-4 Now since the P&L is made, have a look at the gross profit & Net profit figures. The G.P & N.P ratios cannot be less than last year unless there is major change in turnover compared to last year. Based on this principle, arrive at a Net profit figure on which Advance Tax should be calculated (G.P & N.P Ratio may be increased a bit for current projection).
Step-5 Form 26AS should be taken into account to take all incomes into consideration shown in the form 26AS on which TDS is deducted. Remember to also take TDS credit on projected basis for the whole year

Step-6 Also keep an eye on the surcharge applicable where total income exceeds the limits specified for applicability of surcharge in case of companies/firms.

Step-7 Once advance Tax is calculated, you could pay 90% of the amount due. The 90% principle saves money (10%) and also interest. u/s 234B is saved. Only 234C interest is to be paid which is less than the amount earned by saving 10% of the amount.

For Companies/Firms etc. whose accounts are not upto date or reliable as on date of calculation
Step-1 Forecast the sales figures of the current year based on the data available till date.
Step-2 Based on the sales figures, arrive at Gross profit and net profit amounts by taking the Gross and net profit ratio (%) of the previous years. Last year’s ratios should be increased slightly.
Step-3 Based on the net profit arrived at, Calculate the amount of tax.
Points to Remember
1) Do not forget to take into account necessary expenses like depreciation, remuneration in case of firms (Remuneration should only be on Income under the head PGBP).
2) Incomes taxable under other heads of income should be separated i.e. deducted and not taken while calculating net profit under the head PGBP. Incomes taxable under other heads should be taken separately and tax should be calculated separately on these incomes. Example: Income under the head capital gains.
3) Expenses which are to be disallowed are to be added back while calculating net profit. Eg: Expenses disallowed on account of personal use.
4) Any income or expense which have not occurred yet but is expected to be done based on previous experience should be taken into account while calculating profit and consequently tax figures.
5) In case of Companies, remember to add back depreciation as per books (i.e.as per Companies Act) and deduct Depreciation as per the Income Tax Act.
6) Also keep an eye on the surcharge applicable where total income exceeds the limits specified for applicability of surcharge in case of companies/firms.
7) After taking into consideration Form 26 AS, after taking all above points advance Tax can be calculated.

Hope you find the above information relevant and useful in your daily practice.