1. Confirm If You Are Liable to Pay
Before diving into calculations, the first step is to determine if you need to pay advance tax at all. The rule is straightforward: if your estimated total tax liability for the financial year is ₹10,000 or more, you are required to pay advance tax. This
applies to individuals, freelancers, business owners, and professionals. Salaried individuals who earn additional income from sources like rent, capital gains, freelance gigs, or high-interest deposits also fall under this mandate if their tax liability on this extra income, after accounting for Tax Deducted at Source (TDS), exceeds the threshold. However, there is a key exemption: resident senior citizens (aged 60 and above) who do not have any income from a business or profession are not required to pay advance tax.
2. Re-estimate Your Annual Income Accurately
Advance tax is paid on your estimated income for the entire year. With the second instalment due, now is a good time to revisit your initial projections. Your income may have changed since the first instalment in June. Perhaps you realised a capital gain, started a new freelance project, or received unexpected dividend or interest income. It's crucial to consolidate all your potential income sources for the financial year, including salary, business profits, professional fees, rental income, and gains from stocks or property. From this total estimated income, subtract all eligible deductions you plan to claim, such as those under Chapter VI-A (like Section 80C and 80D). An accurate and updated income estimate is the foundation for calculating the correct tax liability and avoiding a shortfall.
3. Calculate the Cumulative Instalment Correctly
The advance tax payment schedule is structured in four parts. By September 15, you are required to have paid at least 45% of your total estimated annual tax liability. This is a cumulative figure. It means the amount you pay for this deadline should be the total 45% minus the 15% you should have already paid by the first deadline on June 15. For example, if your total estimated advance tax for the year is ₹1 lakh, you should have paid ₹15,000 by June 15. By September 15, your total payment should reach at least ₹45,000. Therefore, the amount to be paid for the September instalment would be ₹30,000 (₹45,000 minus the ₹15,000 already paid). Failing to meet these cumulative percentages can lead to interest penalties under Section 234C of the Income Tax Act.
4. Use the Correct Challan and Assessment Year
Procedural errors are common and can cause unnecessary complications. To pay your advance tax, you must use Challan ITNS 280. When filling out this form, either online or offline, two fields are critical: the Assessment Year (AY) and the Type of Payment. For income earned during the Financial Year 2026-27 (from April 1, 2026, to March 31, 2027), the correct Assessment Year to select is 2027-28. Under 'Type of Payment', you must select '(100) Advance Tax'. Selecting the wrong AY or payment type can lead to the payment being misclassified, causing issues when you file your final income tax return. After payment, you will receive a Challan Identification Number (CIN), which serves as proof of payment and must be quoted in your return.
5. Don’t Miss the Deadline and Keep Records
The due date, September 15, is non-negotiable. Missing it or paying less than the required 45% cumulative tax will attract penal interest of 1% per month for a period of three months on the shortfall amount. This is an avoidable cost. Furthermore, if the total advance tax paid during the year is less than 90% of your final assessed tax, a separate interest under Section 234B is levied from April 1 of the next year. Therefore, it is wise to make the payment on or before the deadline. Once you have made the payment, save the challan receipt. This document is a crucial piece of your tax records. You can verify that the payment has been credited to your name by checking your Form 26AS on the income tax portal after a few days.
