What Exactly Is Advance Tax?
Advance tax is a system of paying your income tax in instalments throughout the financial year, rather than as a single lump sum at the end. Often called a 'pay-as-you-earn' tax, this method ensures a steady flow of revenue for the government and helps
taxpayers manage their cash flow without facing a large, sudden liability. The core principle is simple: if your estimated tax liability for the year is ₹10,000 or more after accounting for any Tax Deducted at Source (TDS), you are required to pay advance tax. This applies to income that doesn't typically have tax deducted at the source, such as earnings from a side business, capital gains, rental income, or interest from fixed deposits.
Who Is Required to Pay?
The liability for advance tax extends to a wide range of taxpayers. This includes salaried individuals who have significant income from other sources (like rent, dividends, or capital gains) that isn't covered by their employer's TDS. Freelancers and self-employed professionals, such as doctors, lawyers, and consultants, must also pay advance tax if their liability crosses the ₹10,000 threshold. Additionally, all businesses, including partnership firms, LLPs, and companies, are required to comply with advance tax rules. It's a common misconception that only businesses need to worry about this; in reality, any individual with diverse income streams is likely affected.
The Instalment Deadlines for FY 2026-27
The Income Tax Act lays out a clear schedule for advance tax payments, divided into four instalments. For the financial year 2026-27 (Assessment Year 2027-28), the deadlines are as follows: First Instalment (On or before June 15, 2026): 15% of the total estimated tax liability. Second Instalment (On or before September 15, 2026): 45% of the total liability, less any tax already paid. Third Instalment (On or before December 15, 2026): 75% of the total liability, less tax already paid. Fourth Instalment (On or before March 15, 2027): 100% of the total liability, less tax already paid. It's important to note these percentages are cumulative. For the upcoming September 15 deadline, you must ensure that a total of 45% of your annual tax has been paid.
Calculating and Paying Your Second Instalment
To calculate your second instalment, you first need to estimate your total income from all sources for the entire financial year (April 1, 2026, to March 31, 2027). From this, calculate your total estimated tax liability for the year. Reduce this amount by any TDS that has been or will be deducted. The resulting figure is your net advance tax liability. For the second instalment due on September 15, you must ensure that 45% of this net liability is paid. If you have already paid the first instalment of 15% in June, you will now need to pay the remaining 30%. Payments can be made online through the official income tax portal using Challan 280.
Exemptions and Special Cases
There is a key exemption from paying advance tax. Resident senior citizens (individuals aged 60 or above) who do not have any income from a business or profession are not required to pay advance tax. This relief applies even if they have other income sources like pension, rental income, or interest, as long as it's not from a business. Another special category includes taxpayers who opt for the presumptive taxation scheme under sections 44AD or 44ADA. They are not bound by the quarterly instalment schedule and can pay their entire advance tax in a single instalment on or before March 15.
What Happens If You Miss the Deadline?
Failing to pay or underpaying an advance tax instalment attracts interest penalties under the Income Tax Act. Specifically, interest under Section 234C is levied at a rate of 1% per month for a period of three months on the shortfall amount for the first three instalments. For instance, if you pay less than 45% of your tax liability by September 15, a 1% monthly interest will be charged on the deficit for three months. Separately, if you fail to pay at least 90% of your total tax liability by the end of the financial year (March 31), an additional interest penalty under Section 234B can be applied on the unpaid amount.
