What Exactly Is Advance Tax?
Advance tax is a system where you pay your income tax in instalments throughout the financial year, rather than as a single lump sum at the end. It’s often called a 'pay-as-you-earn' scheme. The core idea is to pay tax on the income as it is earned, which
helps the government maintain a steady flow of revenue and allows taxpayers to manage their cash flow without facing a large, one-time payment burden. This system applies to income that is not subject to Tax Deducted at Source (TDS), such as earnings from a business, profession, capital gains, rental income, or interest on deposits.
Who Is Required to Pay?
According to the Income Tax Act, any individual, freelancer, or business whose estimated tax liability for the financial year is ₹10,000 or more is required to pay advance tax. This rule applies after accounting for any TDS that has been deducted. For example, a salaried individual may have TDS cut from their salary, but if they have other significant income from sources like fixed deposits or capital gains, they must pay advance tax on that additional income. There is a key exemption: resident senior citizens (aged 60 or above) who do not have any income from a business or profession are not required to pay advance tax.
The September 15 Deadline
The due date for the second instalment of advance tax for the financial year 2026-27 is September 15, 2026. By this date, taxpayers must have paid a cumulative total of at least 45% of their total estimated advance tax for the year. If you have already paid the first instalment of 15% by the June 15 deadline, you will need to pay the remaining 30% to reach the 45% cumulative target. It's crucial to understand that these percentages are cumulative, meaning each instalment builds upon the last.
How to Calculate Your Instalment
Calculating your advance tax instalment involves a few straightforward steps. First, estimate your total income from all sources for the entire financial year (April 1, 2026, to March 31, 2027). Second, subtract any eligible deductions you plan to claim under sections like 80C, 80D, etc., to arrive at your estimated taxable income. Third, apply the applicable income tax slab rates for the year to calculate your total tax liability. Finally, deduct any TDS that has already been paid or will be paid. The resulting amount is your net advance tax liability. For the second instalment, you must ensure that at least 45% of this net liability is paid by September 15.
Consequences of Missing the Deadline
Failing to pay the required advance tax instalment on time results in interest penalties. Under Section 234C of the Income Tax Act, interest of 1% per month for a period of three months is charged on the shortfall amount for the instalment. For instance, if you fall short of the 45% target by the September deadline, this 1% interest will be levied on the deficit. Furthermore, if your total advance tax paid by the end of the financial year (March 31) is less than 90% of your total assessed tax, you will be liable to pay interest under Section 234B. This is also charged at 1% per month on the unpaid amount, calculated from April 1 of the following year until the tax is paid.
How to Make the Payment
Paying your advance tax is a simple online process. You can make the payment through the official Income Tax Department's e-filing portal. On the portal, navigate to the 'e-Pay Tax' section, select the relevant challan (ITNS 280), and choose 'Advance Tax' as the payment type. You will need to enter your PAN, select the assessment year (2027-28 for the financial year 2026-27), and complete the payment using net banking, a debit card, or UPI. After the payment is successful, make sure to save the challan receipt, as the Challan Identification Number (CIN) is required when filing your income tax return.
