Understanding Advance Tax
Advance tax is essentially a 'pay-as-you-earn' system for income tax. Instead of paying a large lump sum at the end of the financial year, the government requires certain taxpayers to pay their tax in instalments throughout the year. This system helps
the government with a steady flow of revenue and allows taxpayers to manage their financial obligations without a significant year-end burden. The rule is simple: if your total estimated tax liability for the financial year is ₹10,000 or more, you are required to pay advance tax.
Who is Liable to Pay?
The requirement to pay advance tax extends to various individuals and entities. This includes freelancers, consultants, and business owners who don't have taxes deducted at source (TDS). It also applies to individuals earning income from sources other than their salary, such as rental income, interest from fixed deposits, or capital gains from selling stocks, property or mutual funds. Even salaried individuals may need to pay advance tax if they have significant other income not covered by their employer's TDS, or if the TDS deducted is insufficient to cover their total tax liability for the year. However, there is an exemption for resident senior citizens (aged 60 and above) who do not have any income from a business or profession.
The Instalment Schedule for FY 2026-27
The Income Tax Department has a set schedule for advance tax payments, divided into four instalments. For the financial year 2026-27, the deadlines are as follows: the first instalment by June 15 (15% of total tax), the second by September 15 (cumulative 45%), the third by December 15 (cumulative 75%), and the final instalment by March 15 (100% of the tax). The upcoming September 15 deadline requires taxpayers to have paid a cumulative total of at least 45% of their estimated annual tax liability.
How to Calculate Your Second Instalment
Calculating your advance tax involves a few steps. First, estimate your total income from all sources for the entire financial year (April 1, 2026, to March 31, 2027). From this, subtract any eligible deductions you plan to claim. Next, calculate the income tax on this net taxable income using the applicable slab rates. Finally, subtract any TDS that has already been deducted. If the remaining tax liability is over ₹10,000, you must pay advance tax. For the September 15 deadline, ensure that the total tax paid so far (including the first instalment) is at least 45% of this calculated annual tax. If your income changes later in the year, you can revise your estimate and adjust payments in subsequent instalments.
Penalties for Missing the Deadline
Failing to pay advance tax or underpaying the required amount attracts interest penalties under the Income Tax Act. Interest under Section 234C is levied at 1% per month on the shortfall amount for the period of delay. For instance, if you pay less than 45% of your total tax by September 15, a 1% interest charge will be applied to the deficit for three months. Additionally, if the total advance tax paid by March 31 is less than 90% of your final assessed tax, interest under Section 234B at 1% per month is levied from April 1 of the following year until the tax is paid.
How to Pay Online
The process of paying advance tax is straightforward and can be completed online through the official Income Tax 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, you can pay using various methods, including net banking, debit card, UPI, or a payment gateway. After successful payment, download the challan receipt for your records.
