Who Is Required to Pay Advance Tax?
Advance tax is essentially a 'pay-as-you-earn' system for income tax. Instead of a lump-sum payment at the end of the year, you pay tax in instalments throughout the financial year in which you earn the income. The rule is straightforward: if your estimated
total tax liability for the financial year is ₹10,000 or more, you must pay advance tax. This applies to a wide range of earners, not just large corporations. The requirement covers salaried individuals who have significant additional income from sources like rent, capital gains, interest, or dividends. It is also mandatory for freelancers, consultants, and business owners whose income is not subject to Tax Deducted at Source (TDS). The only major exception is for resident senior citizens (aged 60 and above) who do not have any income from a business or profession; they are exempt from paying advance tax.
Understanding the Instalment Schedule
Advance tax is paid in four quarterly instalments. The upcoming September 15, 2026, deadline is for the second instalment of the financial year 2026-27. By this date, you must have paid a cumulative total of at least 45% of your total estimated tax liability for the year. The percentages are cumulative, meaning the amount you pay in September should bring your total payment for the year up to the 45% mark, accounting for what you already paid in the first instalment. The full schedule for individual and corporate taxpayers is: by June 15, 15% of tax liability; by September 15, 45% of tax liability; by December 15, 75% of tax liability; and by March 15, 100% of tax liability. Keeping track of these dates is crucial to avoid interest penalties.
How to Calculate Your Payment
Calculating your advance tax might seem complex, but it can be broken down into simple steps. First, estimate your total income from all sources for the entire financial year (April 1, 2026, to March 31, 2027). This includes your salary, business profits, professional fees, rental income, and any anticipated capital gains or dividends. Next, subtract any eligible deductions you plan to claim, such as those under Section 80C. Apply the applicable income tax slab rates to this net taxable income to find your total estimated tax for the year. From this amount, subtract any TDS that has been or will be deducted by your employer or clients. If the remaining tax payable is more than ₹10,000, you are liable for advance tax. For the September 15 deadline, calculate 45% of this final liability and subtract the amount you paid for the first instalment in June.
The Simple Steps to Pay Online
The process of paying advance tax is now entirely digital and user-friendly. You can make the payment through the official Income Tax e-Filing portal. You do not need to log in to use the 'e-Pay Tax' service, which is available under the 'Quick Links' section. You will need to enter your PAN, and after an OTP verification on your mobile number, you can proceed. Select 'Income Tax', choose the Assessment Year (which will be 2027-28 for income earned in FY 2026-27), and select the 'Type of Payment' as 'Advance Tax'. After entering the tax amount, you can pay using various methods like net banking, debit card, UPI, or through a payment gateway. Once the payment is successful, remember to download the challan receipt as proof of payment.
What Happens If You Miss the Deadline?
Missing an advance tax deadline or underpaying an instalment does not lead to severe penalties, but it does have financial consequences. The Income Tax Act levies interest under Section 234C for the deferment of advance tax payments. This is a simple interest of 1% per month, charged on the shortfall amount for a period of three months. For example, if you fall short of the required 45% payment by September 15, interest will be charged on the deficit amount for three months. Additionally, if your total advance tax paid by March 31 is less than 90% of your final assessed tax, a separate interest under Section 234B is charged at 1% per month from the beginning of the next financial year until the tax is paid. Paying on time is the easiest way to avoid these extra costs.
