Reviewing advance tax computation means independently recomputing the company's estimated total income for the year, the resulting tax liability including any applicable surcharge, cess, and minimum alternate tax comparison, and checking that instalments were paid by the prescribed due dates in the prescribed cumulative percentages, then computing the interest exposure under sections 234B and 234C where instalments fell short, rather than simply confirming that some amount was paid against each due date; the exact instalment percentages, due dates and interest rates should be confirmed against the current Income-tax Act.
Recomputing the estimate
Advance tax is based on the taxpayer's own estimate of current income, made at a point when the full year's results are not yet known. The audit review happens after year end with actual results available, so the test is not whether the company's estimate was perfect in real time, but whether it was a reasonable estimate given information available at each instalment date, and whether the final instalment, due closest to year end, was adjusted to reflect a more complete picture of actual results.
Testing approach
- 01Recompute tax liability on actual income and compare to tax paid as advance taxUsing the final determined taxable income for the year, recompute the tax payable and compare the cumulative advance tax paid at each instalment date against the prescribed cumulative percentage of that final liability.
- 02Check the MAT comparison was built into each instalment's estimateWhere minimum alternate tax under section 115JB could exceed tax computed under normal provisions, the advance tax instalments should be based on the higher of the two; confirm the company's quarterly estimate actually ran this comparison rather than defaulting to normal tax computation alone.
- 03Recompute interest under section 234C for shortfall in individual instalmentsSection 234C interest applies where an individual instalment falls short of the prescribed cumulative percentage of tax due by that date, computed instalment by instalment regardless of whether the full year's tax was eventually paid; a shortfall in an early instalment made up for in a later one still attracts interest for the period of the shortfall.
- 04Recompute interest under section 234B for shortfall in aggregate advance taxWhere total advance tax paid falls short of a prescribed percentage of the assessed tax liability, interest runs from the first day of the assessment year on the shortfall; confirm the provision for tax includes this interest where applicable.
- 05Check TDS and TCS credit was correctly netted before computing the shortfallAdvance tax liability is computed net of tax already deducted or collected at source during the year; confirm the company's computation correctly reduced the estimated liability by expected TDS and TCS credit, not just by advance tax instalments paid directly.
A company that revises its income estimate sharply upward only in the fourth instalment, after most of the year's results are already known, often still carries 234C exposure for the earlier instalments even though the final instalment and annual tax payment look complete; the interest is computed instalment by instalment and is not cured by later overpayment.
Regulatory requirement
The exact instalment due dates, cumulative percentages, and interest rates under sections 234B and 234C, and the MAT comparison mechanism under section 115JB, are set out in the Income-tax Act as currently in force. Confirm all of these against current source material before finalising the tax provision.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- CARO & Companies ActMAT computation audit: section 115JB considerationsWhat an auditor checks on MAT computation under section 115JB: book profit adjustments, MAT credit tracking, and the normal tax comparison.
- Audit documentationInd AS 12: income taxes, and how a deferred tax balance actually gets builtDeferred tax isn't computed from the profit and loss difference between book and tax. It's computed balance sheet item by balance sheet item, and that distinction changes the whole calculation.
- CARO & Companies ActICDS: audit considerations for tax audit reportingHow ICDS diverges from Ind AS and Indian GAAP, and what an auditor checks when reconciling book profit to taxable income for ICDS reporting.
- CARO & Companies ActForm 3CD: a clause-by-clause walkthrough for the tax auditorA practical walkthrough of the most audit-relevant Form 3CD clauses: disallowances, TDS, inventory valuation, loans and GST reconciliation.
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