TDS: The Automated Tax on Your Salary
Tax Deducted at Source, or TDS, is the system through which your employer deducts income tax directly from your monthly salary. This process, governed by Section 192 of the Income Tax Act, ensures that your tax liability on salary income is met throughout
the year, rather than in a single lump sum. Your employer estimates your total annual salary, calculates the tax based on the income tax slabs you fall under, and divides this amount to deduct it monthly. This is why for most employees whose only source of income is their salary, TDS is the beginning and end of their income tax process. It is a 'pay-as-you-earn' model managed entirely by your employer.
What is Advance Tax, and When Does It Apply?
Advance Tax is another form of 'pay-as-you-earn,' but the responsibility falls on you, the taxpayer, not your employer. It is income tax paid in instalments during the financial year if your total tax liability for the year is ₹10,000 or more after accounting for any TDS that has already been deducted. So, if the tax on your non-salary income exceeds this threshold, you are required to pay advance tax. This rule applies to everyone—salaried individuals, freelancers, and business owners. The only primary exception is for resident senior citizens (aged 60 and above) who do not have any income from a business or profession.
The Salaried Employee's Advance Tax Scenarios
The common misconception is that salaried individuals don't need to pay advance tax. This is only true if your salary is your sole income. The liability arises when you earn from other sources where tax isn't deducted, or is deducted at a lower rate. Common examples for the financial year 2026-27 include: Capital Gains: Profit from selling stocks, mutual funds, or property is a major trigger. Since your employer's TDS doesn't cover this, you must calculate and pay the tax yourself. Interest Income: Banks deduct 10% TDS on fixed deposit interest if it exceeds ₹40,000. However, if you are in the 20% or 30% tax bracket, the deducted amount is insufficient, and you are liable for the difference. Rental Income: If you earn rent from a property, this income is added to your total income and is subject to advance tax. Freelance or Side-Gigs: Any income from part-time work or consulting where no TDS was deducted falls under the advance tax net.
How to Calculate and Pay Advance Tax in 2026
Calculating your advance tax liability for the financial year 2026-27 involves a few straightforward steps. 1. Estimate Total Income: Sum up your income from all sources for the year (April 1, 2026, to March 31, 2027), including salary, interest, capital gains, and any other earnings. 2. Calculate Total Tax: Apply the applicable income tax slab rates for FY 2026-27 to your estimated total income to find your gross tax liability. Remember to add the 4% health and education cess. 3. Subtract TDS: From this gross tax amount, deduct the total TDS your employer will deduct from your salary and any other TDS credits available. 4. Check the Threshold: If the remaining tax payable is ₹10,000 or more, you are required to pay advance tax. This is the amount you need to pay in instalments.
Key Dates and Penalties to Avoid
Advance tax must be paid in four instalments throughout the financial year. For FY 2026-27, the due dates are: By June 15, 2026: 15% of your total advance tax. By September 15, 2026: 45% of your total advance tax. By December 15, 2026: 75% of your total advance tax. By March 15, 2027: 100% of your total advance tax. Missing these deadlines or underpaying can lead to penalties. Interest under Section 234C is charged at 1% per month for the period of delay on the shortfall of each instalment. Additionally, if you fail to pay at least 90% of your total tax liability by March 31, 2027, you will be charged interest under Section 234B at 1% per month from April 1, 2027, until you pay the full amount.
