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Quick Snapshot
Think of advance tax as a school fee you pay term by term instead of a lump sum at year-end. The government does not want to wait until March to collect tax on income you earned in April. So it asks you to estimate your annual income and pay tax in four installments across the year.
Here is the rule in plain terms. If your expected tax liability for the year exceeds Rs. 10,000, even after accounting for TDS, you must pay advance tax.
Let us take a simple example.
Priya is a freelance graphic designer earning around Rs. 15 lakh a year. Her clients do not deduct TDS. Her total tax liability, say Rs. 2.1 lakh, needs to be paid in four parts across the year. If she pays nothing all year and dumps the full amount in March, she pays interest on every installment she missed. That interest is not huge per installment, but it is entirely avoidable.
The advance tax system serves two purposes. First, the government maintains steady cash flow throughout the year. Second, taxpayers avoid a surprise large payment in March. It is a win-win, but only if you plan.
Who Must Pay Advance Tax?
Under Section 403 and 404 of the Income Tax Act, 2025 (corresponding to Sections 207 and 208 of the Income Tax Act, 1961), advance tax applies to every taxpayer, including individuals, companies, firms, and professionals, whose estimated tax liability for the year is Rs. 10,000 or more.
This threshold applies after adjusting for TDS already deducted or collectible at source during the year.
Who is Exempt?
One important exemption exists. A resident senior citizen aged 60 years or above, who does not have any income chargeable under the head “Profits and gains of business or profession,” is not required to pay advance tax [Section 403(3), Income Tax Act, 2025, corresponding to Section 207(2), Income Tax Act, 1961].
So a retired individual earning only pension, interest, and rent, with no business income, is fully exempt from advance tax regardless of income level.
What About Presumptive Taxation?
If you have opted for presumptive taxation under Section 58(2) of the Income Tax Act, 2025 (equivalent to Section 44AD/44ADA of the 1961 Act), the entire advance tax is payable in one single installment on or before 15th March and not in four installments [Section 408(2), Income Tax Act, 2025].
How to Calculate Advance Tax
The calculation follows a formula laid down in Section 405 of the Income Tax Act, 2025 (corresponding to Section 209 of the 1961 Act):
A = B minus C
Where:
- A = Advance tax payable in the financial year
- B = Income tax on your estimated current income calculated at rates in force for the financial year
- C = TDS/TCS already deducted or collectible at source on income included in the estimated income, provided the deductor has actually paid or credited that income after deduction
Example: Step-by-Step Calculation
Rohit is a salaried professional who also earns freelance consulting income. His estimated income for FY 2026-27 is:
| Source | Amount |
| Salary | Rs. 8,00,000 |
| Freelance Consulting | Rs. 4,00,000 |
| Bank Interest | Rs. 250,000 |
| Total Estimated Income | Rs. 14,50,000 |
Assume tax on Rs. 14,50,000 at applicable slab rates (new regime) works out to Rs. 1,01,400. Suppose his employer deducted TDS of Rs. 40,000 from salary.
Advance tax payable = Rs. 1,01,400 minus Rs. 40,000 = Rs. 61,400
Since Rs. 61,400 exceeds Rs. 10,000, Rohit must pay advance tax in four instalments.
Rohit should use his best estimate of annual income at each instalment date. He can revise his estimate upward or downward in subsequent instalments under Section 406(2).
Due Dates and Installment Schedule
Section 408(1) of the Income Tax Act, 2025 (corresponding to Section 211 of the 1961 Act) prescribes four installments for most taxpayers:
| Installment | Due Date | Minimum Cumulative % to Pay |
| 1st | On or before 15th June | At least 15% of total advance tax |
| 2nd | On or before 15th September | At least 45% (cumulative) |
| 3rd | On or before 15th December | At least 75% (cumulative) |
| 4th | On or before 15th March | 100%, the full balance |
Using Rohit’s example (advance tax = Rs. 61,000):
| Installment | Due Date | Cumulative to Pay | Incremental Payment |
| 1st | 15th June | Rs. 9,210 (15%) | Rs. 9,210 |
| 2nd | 15th September | Rs. 27,630 (45%) | Rs. 18,420 |
| 3rd | 15th December | Rs. 46,050 (75%) | Rs. 18,420 |
| 4th | 15th March | Rs. 61,400 (100%) | Rs. 15,350 |
Any advance tax paid on or before 31st March is treated as advance tax paid during that financial year for all purposes of the Act [Section 408(3)].
What If You Miss or Underpay an Installment?
Missing or underpaying advance tax triggers interest under two separate provisions.
1. Interest for Default in Payment (Section 424, corresponding to Section 234B of the 1961 Act)
If the advance tax paid during the year is less than 90% of the assessed tax, you pay simple interest at 1% per month (or part of a month) on the shortfall. Interest runs from 1st April of the following year until the date of determination of total income under Section 270(1) or completion of regular assessment, whichever applies.
“Assessed tax” here means the tax on total income as finally determined, reduced by TDS/TCS credits, foreign tax relief, and other applicable credits as defined in Section 424(2).
2. Interest for Deferment of Instalments (Section 425, corresponding to Section 234C of the 1961 Act)
This provision applies when your advance tax payment at a specific installment date falls short of the required cumulative percentage of tax on returned income. The interest is a flat charge on the shortfall at each installment date, not a monthly running rate. The Act prescribes the following rates:
| Installment Date | Required Cumulative % of Tax on Returned Income | Flat Interest on Shortfall |
| 15th June | 15% | 3% |
| 15th September | 45% | 3% |
| 15th December | 75% | 3% |
| 15th March | 100% | 1% |
Safe harbour: No Section 425 interest applies if advance tax paid by 15th June is at least 12% of tax on returned income, or if advance tax paid by 15th September is at least 36% of tax on returned income [Section 425(2)].
“Tax on returned income” means the tax on total income declared in your return, reduced by TDS/TCS credits and other reliefs as specified in Section 425(5).
No Interest for Certain Unexpected Incomes
No interest under Section 425 applies if the shortfall arises because of underestimating these specific income types, provided you pay the full tax on them in remaining installments or by 31st March [Section 425(4)]:
- Capital gains
- Dividend income
- Business or profession income arising for the first time during the year
- Casual income under Section 2(49)(n) such as lottery winnings
This relief recognises that you cannot always predict capital gains or dividend receipts in advance.
How to Pay Advance Tax
Pay advance tax using Challan ITNS 280 on the Income Tax e-filing portal (www.incometax.gov.in) or through authorised bank branches. Select “Advance Tax” as the type of payment (Code 100). Keep all payment challans safely as they serve as proof of advance tax credit.
Practical Compliance Checklist
- If you are salaried with only salary income and adequate TDS: Estimate your total tax at year-end. If the net payable after TDS exceeds Rs. 10,000, pay the shortfall as advance tax before 15th March to avoid Section 424 interest.
- If you are a freelancer or consultant without TDS: Calculate your estimated annual income by June. Pay at least 15% of expected tax by 15th June. Revise your estimate in September and pay up to 45% cumulatively. This avoids all Section 425 interest.
- If you are a senior citizen (60+) with no business income: You are fully exempt from advance tax under Section 403(3). No advance tax payment is required. Pay self-assessment tax before filing your return.
- If you opted for presumptive taxation under Section 58(2): Pay 100% of advance tax in one installment by 15th March. No quarterly payments are needed.
- If you earned unexpected capital gains mid-year: Pay the tax on those gains in the next available installment. No Section 425 interest applies to this specific shortfall, as long as you pay it by 31st March.
Advance tax sounds intimidating, but it really comes down to one discipline. Estimate your income reasonably in June and again in September. Two revisits a year, and you will never face interest. Most people who get caught are not careless; they simply did not know the due dates. Now you do.
