Advance Tax
Definition
Income tax paid in quarterly installments during the financial year itself, rather than as a lump sum at year-end. Under Section 208 of the Income Tax Act, advance tax is mandatory if your estimated tax liability (after TDS) exceeds โน10,000 in a financial year. It must be paid in 4 installments: 15% by June 15, 45% by September 15, 75% by December 15, and 100% by March 15. Failure to pay results in interest under Sections 234B (default) and 234C (deferment) at 1% per month.
Why is Advance Tax Important?
Navigating the Indian tax system requires a clear understanding of terms like Advance Tax. With the introduction of the new income tax regime alongside the old one, taxpayers must evaluate their deductions, exemptions, and tax brackets carefully. This concept is a key component in optimizing your tax liabilities under the Income Tax Act and GST framework.
Proper tax planning using this metric can help individuals and businesses maximize their take-home income while remaining fully compliant with government regulations. We provide free tax calculators to help you estimate these figures accurately and make informed decisions before filing your returns.
What is Advance Tax?
Advance tax (also called 'pay-as-you-earn' tax) is income tax that must be paid in installments during the financial year in which the income is earned, rather than waiting until the end of the year or the assessment year. It is governed by Sections 207-211 of the Income Tax Act, 1961.
The government requires advance tax to ensure a steady flow of revenue throughout the year, rather than receiving all tax collections at once during filing season.
Who Must Pay Advance Tax?
Under Section 208, advance tax is mandatory for any taxpayer whose estimated tax liability for the year exceeds โน10,000 (after subtracting TDS/TCS). This includes:
- Salaried individuals with additional income (capital gains, rental income, interest, freelancing) where TDS doesn't cover full tax liability
- Freelancers and consultants โ income without TDS deduction
- Business owners โ self-employed professionals (doctors, lawyers, CAs, architects)
- Investors โ those earning capital gains from shares, mutual funds, or property sale
- NRIs with India-sourced income exceeding โน10,000 in tax liability
- Companies and firms โ all corporate entities regardless of amount
Exemption: Resident senior citizens (60+ years) who have no income from business or profession are exempt from advance tax (Section 207). However, senior citizens with business income must still pay.
Advance Tax Due Dates & Installment Schedule
| Installment | Due Date | % of Tax Payable | Cumulative % |
|---|---|---|---|
| 1st Installment | On or before June 15 | 15% | 15% |
| 2nd Installment | On or before September 15 | 30% | 45% |
| 3rd Installment | On or before December 15 | 30% | 75% |
| 4th Installment | On or before March 15 | 25% | 100% |
Exception โ Presumptive Taxation (Sections 44AD/44ADA): Taxpayers under the presumptive scheme can pay 100% of advance tax in a single installment by March 15.
How to Calculate Advance Tax
Follow these 4 steps to determine your advance tax liability:
| Step | Action | Example (โน15L Income, New Regime) |
|---|---|---|
| Step 1 | Estimate total income from all sources for the FY | Salary โน12L + Capital Gains โน2L + Interest โน1L = โน15L |
| Step 2 | Compute tax on estimated income using applicable slab rates | Tax under new regime (AY 2026-27) = โน1,30,000 |
| Step 3 | Add surcharge (if applicable) + 4% Health & Education Cess | โน1,30,000 + โน5,200 (cess) = โน1,35,200 |
| Step 4 | Subtract TDS already deducted from salary and other sources | TDS on salary: โน90,000 โ Net tax: โน1,35,200 โ โน90,000 = โน45,200 |
Since โน45,200 exceeds โน10,000 threshold โ Advance tax is applicable.
| Installment | Due Date | Amount Due |
|---|---|---|
| 1st (15%) | June 15 | โน6,780 |
| 2nd (45%) | September 15 | โน20,340 (cumulative) โ โน6,780 = โน13,560 |
| 3rd (75%) | December 15 | โน33,900 (cumulative) โ โน20,340 = โน13,560 |
| 4th (100%) | March 15 | โน45,200 (cumulative) โ โน33,900 = โน11,300 |
Interest & Penalty for Non-Payment
| Section | When It Applies | Interest Rate | Charged On | Period |
|---|---|---|---|---|
| Section 234B | If advance tax paid is less than 90% of assessed tax liability | 1% per month (simple) | Shortfall between tax paid and 90% of assessed tax | April 1 of AY until date of full payment |
| Section 234C | If any quarterly installment is not paid by the due date or is short-paid | 1% per month (simple) | Shortfall for each installment | 3 months for installments 1-3; 1 month for installment 4 |
Example: If your total tax liability is โน1,00,000 and you paid zero advance tax, Section 234B interest = โน1,00,000 ร 1% ร number of months from April to payment date. Additionally, Section 234C would apply for each missed installment.
How to Pay Advance Tax Online
- Step 1: Visit the Income Tax e-Filing portal โ 'e-Pay Tax'
- Step 2: Select Challan No. ITNS 280
- Step 3: Choose 'Advance Tax (100)' under 'Type of Payment'
- Step 4: Enter PAN, Assessment Year, address, and payment amount
- Step 5: Pay via net banking, debit card, UPI, or NEFT/RTGS
- Step 6: Save the challan receipt (BSR code + challan serial number) โ needed while filing ITR
Capital Gains & Advance Tax
Capital gains (from stock sale, mutual fund redemption, or property sale) are often unpredictable and may occur in the middle of the year. Special rule:
- If capital gains arise after an installment due date, you can pay the advance tax on those gains in the remaining installments
- No Section 234C interest is charged for the installments that had already passed before the capital gain occurred
- For example, if you sell shares in November, you pay advance tax on the gains in the December 15 and March 15 installments
Practical Tips
- Track income quarterly โ Estimate your annual income at each quarter-end and calculate advance tax due
- Don't forget capital gains โ Stock trading profits, MF redemptions, and property sales trigger advance tax
- Factor in TDS โ Your employer's TDS on salary counts toward your total tax. Only pay advance tax on the net shortfall
- Set calendar reminders โ June 15, September 15, December 15, March 15 are non-negotiable deadlines
- Pay slightly more than required โ If unsure about exact income, err on the side of paying slightly more. You'll get a refund, which is better than paying 1%/month interest
- Use our Income Tax Calculator to estimate your total tax liability and advance tax installment amounts