The Significance of Advance Tax payments

The year is coming to an end and the holiday season is ready to land on you and lets not forget as advance tax payments come into picture the call money market alias the money market gets hotter……..what exactly is this Advance tax that you see splashed around pink press and ads when you are about to watch a movie either on your idiot box or on screen…..

Before we go ahead, it is pertinent to understand that advance tax is paid every three months, four times a year and in four installments:

• On or before the 15th June : Not less than 15%
• On or before the 15th September--- Not less than 45%, as reduced by the amount, if any, paid in the first instalment.
• On or before the 15th December --- Not less than 75%, as reduced by the first and second instalments.
• On or before the 15th March --- which is 100%, as reduced by the amount paid in the earlier instalments.
  
  Hence the significance of the Advance Tax, as it is an indicator of the health of not just the company but is a reflection of the economy.
  
  
  The Advance tax numbers are out for the quarter from October till December and going by the numbers, it not half as bad as we all had expected. From fears of advance taxes not coming in or more than halving, the figures that have come out, especially in today’s trying times is very encouraging. Given the trying times, it was expected that figures for Oct-Dec quarter would show a dip but surprisingly, the Advance Tax numbers have been good.
  
  State Bank of India has emerged as the top tax payer for the third quarter with a 56% jump in the payment on a YoY at Rs.1700 crore. Bank of India showed a 76% jump at Rs.370 crore, Bank of Baroda paid 10% higher at Rs.220 crore and the highest jump was by Central Bank of India, up by a whopping 123% at Rs.163 crore. LIC Housing reported a 33% jump at Rs.44 crore.
  
  The private sector banks have not had to so good. HDFC Bank, on a YoY showed a 10.7% dip in advance tax for the third quarter at Rs.250 crore. ICICI Bank also showed a marginal dip of 0.6% at Rs.470 crore. Indusind Bank reported a 10% rise in the payment at Rs.22 crore and HDFC showed a 30% jump at Rs.279 crore. Clearly, the PSU banks outweigh the private sector banks when it comes to advance tax payments in current Q3.
  
  On the companies front, the story is not so good for India Inc. Reliance Industries showed a 15.22% dip in its advance tax payment for Q3FY08 at Rs.440 crore as against Rs.519 crore last years Q3. L&T showed a robust 73% rise , while Tata Chemcials showed a 46% rise, TCS showed a rise of 19% , Tata Steel showed a 69% drop, Tata Power paid 12% higher and Tata Sons showed a 72% dip. This means that to a large extent, the Tata group had a mixed bag.
  
  Though other auto companies are yet to give their numbers, the going is expected to be tough, at least that is what the figures of M&M indicates, which for Q3FY08 has shown a shocking 93% drop in advance tax payments.
  
  Cement sector is also expected to take a hit and Ultratech showed a 53% drop. Numbers are expected to come from realty which would again be a eye sore. Ditto for steel. Pharma has turned in a negative collection and by the time the rest of the companies announce, it is sure to show a dip.
  
  Q3 advance tax figures are very important as they indicate the earning ability of the company give the fact that they need to pay a whopping 75% of their estimated estimated tax liability for the year by December 15. So if a company shows a huge fall in the payment, it means that its bottom lines are under pressure. These figures will thus indicate which companies are in trouble and which are still holding their head above the water.
  
  Thus Advance tax is an important indicator of the company’s health and if properly analyzed can help us to exploit the market inefficiencies if any available……something akin to Business intelligence…….!

Disclaimer: The author of this page is not a registered financial advisor, and you should not construe anything written here to be investment advise. You should consult a qualified broker or other financial advisor prior to making any actual investment or trading decisions. All information is a point of view, and is for educational and informational use only. No representation is being made that any investment made on the basis of data or information on this blog will result in profits. The author accepts no liability for any interpretation of articles or comments on this blog being used for actual investments.