What is Advance Tax?
Advance tax is often called the '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 mechanism ensures a steady flow of revenue for the government and helps taxpayers manage their cash flow without facing a large, one-time payment. The rules apply to income that is not subject to Tax Deducted at Source (TDS), or where TDS is insufficient to cover the total tax liability.
Who is Required to Pay?
Any individual taxpayer whose estimated tax liability for the financial year is ₹10,000 or more is required to pay advance tax. This rule applies to salaried individuals who have other sources of income like rent, capital gains from shares or property, interest from fixed deposits, or freelance work. For salaried individuals, their employer already deducts TDS, but if their non-salary income pushes their total tax liability over the ₹10,000 threshold, they must pay advance tax on that additional income. Resident senior citizens (aged 60 and above) who do not have any income from a business or profession are exempt from this requirement.
The September 15 Deadline
The government sets four deadlines for advance tax payments each year. The second instalment is due on or before September 15, 2026. By this date, you are required to have paid a cumulative total of at least 45% of your total estimated advance tax for the year. This figure includes the first instalment of 15% that was due on June 15. Therefore, if you paid 15% in June, you need to pay an additional 30% by September 15 to meet the 45% cumulative target.
How to Calculate Your Instalment
Calculating your advance tax requires careful estimation. First, project your total income from all sources for the entire financial year (April 1, 2026, to March 31, 2027). This includes your salary, freelance income, rental income, interest, and any anticipated capital gains. From this, subtract any eligible deductions under sections like 80C, 80D, etc., to arrive at your net taxable income. Next, calculate the total income tax payable on this amount based on the applicable slab rates. Finally, subtract any TDS that will be deducted by your employer or other parties. If this final figure is over ₹10,000, that is your advance tax liability for the year. For the September deadline, you must ensure that the total amount paid so far is at least 45% of this liability.
Steps for Online Payment
Paying advance tax online is a straightforward process through the official income tax portal. You need to use Challan ITNS 280. Visit the e-filing portal and select the 'e-Pay Tax' option. You will be asked to enter your PAN, mobile number, and the Assessment Year (which would be 2027-28 for income earned in FY 2026-27). Crucially, you must select 'Advance Tax' as the type of payment. After entering the tax amount, you can complete the payment using various methods like net banking, debit card, or UPI. A challan with a unique identification number (CIN) will be generated, which serves as proof of payment.
Penalties for Missing the Deadline
Failure to pay the required advance tax instalment on time attracts interest penalties. Under Section 234C of the Income Tax Act, if your cumulative payment by September 15 is less than 45% of your total tax liability, you will be charged interest at 1% per month for three months on the shortfall amount. Furthermore, if your total advance tax paid during the year is less than 90% of your final assessed tax, additional interest under Section 234B is levied at 1% per month from the beginning of the next financial year until the tax is paid. These interest charges are mandatory and cannot be waived, making timely payment crucial.
