Economic Slump Hits India's Advance Tax Collections

by Mary Swire, Tax-News.com, Hong Kong

23 December 2008

Tax collections from 100 of India's top tax-paying companies have declined by nearly 30% this year as a result of the economic slowdown, it has been revealed.

Under Section 208 of India's Income Tax Act, 1961, all companies and individuals are required to make four advance tax payments throughout a financial year where advance income has been calculated at a minimum of INR5,000 (USD106).

Advance tax payments have long been used as a way of predicting a company's profitability, and the news that businesses have been submitting lower tax payments throughout this year will be a cause for concern for the government, which is currently trying to maximize finances in order to balance the economy.

This decline in advance tax payments has largely come from businesses within the manufacturing and automobile sectors, which have taken the largest hit from the global credit crisis.

The news is especially worrying as the final payment of advance tax in December reflects a company's ability to meet its annual fiscal targets.

Subsequently, the government has revealed that in light of this, it is unlikely to meet its internal targets for 2008/09, explaining that it requires overall growth in collections of 26% in order to come anywhere near reaching the goals set out in its budget.

However, despite the decline in tax payments by some sectors, it appears that companies within the banking and infrastructure sectors have been relatively unaffected, with most reporting an increase to annual tax payments.

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