What is Advance Tax?
Advance tax is often called a 'pay-as-you-earn' tax. Instead of paying your entire income tax liability in a lump sum at the end of the financial year, the government requires you to pay it in instalments throughout the year in which the income is earned.
This system ensures a steady flow of revenue for the government and prevents a heavy financial burden on taxpayers at year's end. The rules for advance tax are primarily governed by Sections 208 to 219 of the Income Tax Act, 1961.
Who is Required to Pay?
Any taxpayer—whether an individual, freelancer, or business owner—whose estimated net tax liability for the financial year is ₹10,000 or more is required to pay advance tax. This liability is calculated after accounting for any Tax Deducted at Source (TDS) or Tax Collected at Source (TCS). Salaried individuals are often covered by their employer's TDS deductions. However, if a salaried person has significant additional income from other sources like rent, capital gains, freelance work, or fixed deposit interest, they must pay advance tax if the remaining tax due exceeds the ₹10,000 threshold. A key exemption exists for resident senior citizens (aged 60 and above) who do not have any income from a business or profession; they are not required to pay advance tax.
Key Dates and Instalment Percentages
For the Financial Year 2026-27, the advance tax must be paid in four instalments. The upcoming deadline is for the second instalment. The percentages are cumulative, meaning by each date, a certain total portion of your estimated tax should be paid. The schedule is as follows:
By June 15, 2026: 15% of total estimated tax
By September 15, 2026: 45% of total estimated tax
By December 15, 2026: 75% of total estimated tax
By March 15, 2027: 100% of total estimated tax
For the September 15 deadline, you need to ensure that a total of 45% of your annual tax liability is paid. If you already paid 15% in June, you only need to pay the remaining 30% now.
How to Calculate for Self-Employed
For freelancers, consultants, and business owners, the calculation starts with estimating your total income from all sources for the entire financial year. From this gross income, subtract any eligible deductions under Chapter VI-A (like Section 80C for investments or 80D for health insurance). Apply the applicable income tax slab rates to the resulting taxable income to find your total tax liability. Finally, subtract any TDS that clients may have already deducted from your payments. If the remaining amount is over ₹10,000, that is your advance tax liability for the year, which you must pay according to the instalment schedule.
What Salaried Individuals Must Consider
A salaried person’s employer deducts TDS on their salary, which usually covers the tax on that income. However, if you have other earnings—such as rental income from a property, capital gains from selling shares or property, or interest from bank deposits—your employer’s TDS will not cover the tax on this additional income. You must estimate the tax on these other incomes yourself. If that tax amount exceeds ₹10,000 for the year, you are liable to pay advance tax on it.
The Consequences of Missing the Deadline
Failing to pay your advance tax instalments on time or paying less than the required amount attracts interest penalties. Under Section 234C of the Income Tax Act, a simple interest of 1% per month is levied for a period of three months on the shortfall amount for each quarterly instalment (except the last one). For instance, if you miss the September 15 deadline, interest will be charged on the deficit for three months. Additionally, Section 234B imposes a 1% monthly interest if the total advance tax paid by March 31 is less than 90% of your final assessed tax. These interest charges are mandatory and cannot be waived.
How to Pay Your Advance Tax
The most convenient way to pay advance tax is online through the official Income Tax Department e-Filing portal (incometax.gov.in). On the portal, navigate to the 'e-Pay Tax' section. You will need to enter your PAN, select the Assessment Year (2027-28 for income earned in FY 2026-27), and choose the payment type as 'Advance Tax'. After filling in the tax amount details, you can complete the payment using net banking, debit card, UPI, or other available methods. Always save the challan receipt as proof of payment.
