What is Advance Tax?
Advance tax, often called “pay-as-you-earn” tax, is the income tax paid in installments during the financial year in which the income is earned, rather than as a lump sum at year-end. Under Section 208 of the Income Tax Act, any person whose estimated tax liability for the year exceeds ₹10,000 is required to pay advance tax. This applies to individuals, firms, companies, and other taxpayers.
The advance tax system ensures a regular flow of revenue to the government and prevents taxpayers from facing a large tax burden at one time. Salaried individuals typically have TDS deducted by their employer, which acts as advance tax. However, those with additional income from business, freelancing, capital gains, rent, or interest beyond what TDS covers need to calculate and pay advance tax separately.
Who Needs to Pay Advance Tax?
Advance tax is mandatory for all taxpayers — individuals, HUFs, firms, LLPs, and companies — whose total tax liability after TDS exceeds ₹10,000 in a financial year. This commonly includes self-employed professionals, freelancers, business owners, individuals with significant capital gains, landlords with rental income, and salaried individuals with substantial income from sources beyond salary.
Senior citizens (60 years and above) who don’t have income from business or profession are exempt from advance tax under Section 207 — they can pay their entire tax at the time of filing returns. Taxpayers who have opted for the presumptive taxation scheme under Section 44AD or 44ADA can pay the entire advance tax in a single installment by March 15, instead of quarterly installments.
Advance Tax Due Dates for FY 2025-26
Advance tax must be paid in four quarterly installments. The first installment of 15% of the total estimated tax is due by June 15. The second installment, bringing the cumulative payment to 45%, is due by September 15. The third installment, bringing the total to 75%, is due by December 15. The final installment of the remaining 25%, completing 100% of the tax, is due by March 15.
Companies follow the same schedule with the same percentages. For taxpayers under presumptive taxation (Sections 44AD and 44ADA), the entire advance tax can be paid in a single installment on or before March 15. If the due date falls on a Sunday or public holiday, the payment can be made on the next working day without attracting interest.
How to Calculate Advance Tax
To calculate advance tax, first estimate your total income for the entire financial year, including salary, business income, capital gains, rental income, interest income, and any other income. Apply all eligible deductions under Chapter VI-A (80C, 80D, etc.) and exemptions to arrive at the estimated taxable income. Compute tax using the applicable slab rates (old or new regime).
Add surcharge if applicable (for income above ₹50 lakh) and health and education cess at 4%. From this total tax liability, subtract any TDS already deducted or expected to be deducted during the year. The remaining amount is your advance tax liability, which should be paid in installments as per the due dates. If the net tax payable is ₹10,000 or less, you don’t need to pay advance tax.
How to Pay Advance Tax Online
Advance tax can be paid online through the income tax e-filing portal or through authorized bank websites. Visit the e-Pay Tax section on the income tax portal, select Challan No./ITNS 280, choose the correct assessment year (2026-27 for FY 2025-26 income), and select “Advance Tax (100)” as the type of payment. Enter your PAN, address, and the tax amount.
Choose your preferred payment method — net banking, debit card, or payment through authorized banks. After successful payment, you’ll receive a challan receipt with the BSR code, challan serial number, and date of deposit. Save this receipt carefully as you’ll need these details while filing your income tax return. The payment reflects in your Form 26AS within 3-5 business days.
Interest for Late or Non-Payment of Advance Tax
Non-payment or underpayment of advance tax attracts interest under two sections. Section 234B applies when the total advance tax paid is less than 90% of the assessed tax liability — interest is charged at 1% per month on the shortfall from April 1 of the assessment year until the date of actual payment. Section 234C applies for deferment of individual installments — interest at 1% per month for 3 months on the shortfall for each quarter.
For example, if your total tax liability is ₹1,00,000 and you paid only ₹60,000 as advance tax (less than 90% of ₹1,00,000), Section 234B interest of 1% per month applies on ₹40,000 from April 1 until the date of filing returns. Additionally, if you missed the June 15 installment of ₹15,000, Section 234C interest of ₹450 (1% of ₹15,000 for 3 months) applies for that quarter.
Advance Tax on Capital Gains and Unexpected Income
Capital gains from stock market trading, property sales, or other asset transfers can create unexpected advance tax obligations. If you realize a significant capital gain in any quarter, you should pay advance tax on it in the next due installment. For gains arising after March 15, the entire tax can be paid by March 31 without interest under Section 234C.
For dividend income, lottery winnings, or other irregular income, advance tax should be paid in the quarter in which the income is received. If such income is received late in the year, you can still pay the tax in the immediately following installment. The key is to not defer payment to the next financial year, as that would attract interest under both Sections 234B and 234C.
Advance Tax vs Self-Assessment Tax vs TDS
Understanding the difference between these three forms of tax payment is important. TDS is deducted by the payer before making payment to you — you don’t actively pay it. Advance tax is paid proactively by you during the financial year based on your estimated income. Self-assessment tax is the balance tax paid after the financial year ends but before filing your return, covering any shortfall after TDS and advance tax.
The ideal approach is to ensure that TDS and advance tax together cover at least 90% of your total tax liability, avoiding Section 234B interest. Any remaining amount can be paid as self-assessment tax before filing your return. Using TaxHealer’s advance tax calculator, you can estimate your quarterly obligations and set reminders for due dates.
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