Understanding Advance Tax
Advance tax is often called a 'pay-as-you-earn' tax. Instead of settling your entire income tax liability at the end of the financial year, the Income Tax Act 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, one-time tax burden on taxpayers at the end of the year. The provisions apply to income that is not typically covered by Tax Deducted at Source (TDS), such as profits from a business, rental income, or capital gains.
Who is Required to Pay?
You are legally required to pay advance tax if your estimated total tax liability for the financial year (after deducting any TDS) is ₹10,000 or more. This rule applies to a wide range of taxpayers, including salaried individuals who have significant other income, freelancers, consultants, and business owners. For salaried employees, if your employer's TDS covers your entire tax liability and you have no other substantial income, you may not need to pay advance tax. However, if you have earnings from sources like fixed deposits, capital gains from stocks or property, or rental income, you must calculate and pay advance tax on that additional income. There is an exemption for resident senior citizens (aged 60 and above) who do not have any income from a business or profession.
The September 15 Instalment: How Much Is Due?
The September 15, 2026, deadline marks the due date for the second instalment of advance tax for the Financial Year 2026-27. By this date, taxpayers are required to have paid a cumulative total of at least 45% of their estimated annual tax liability. This percentage is cumulative, meaning it includes the 15% that should have been paid by the first deadline on June 15. If you paid 15% in June, you need to pay an additional 30% by September 15 to reach the 45% minimum. If you missed the first instalment, you should pay the entire 45% by this deadline to catch up.
How to Calculate and Pay Your Advance Tax
To calculate the amount, 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 gross income, subtract any eligible deductions under sections like 80C or 80D to arrive at your net taxable income. Calculate the tax payable on this income using the applicable tax slabs. Finally, deduct any TDS that has been or will be deducted during the year. If this final amount exceeds ₹10,000, you are liable for advance tax. Payment can be made online through the Income Tax Department's e-Filing portal. You will need to use Challan ITNS 280, select 'Advance Tax' as the type of payment, and choose the correct assessment year (2027-28 for income earned in FY 2026-27). Payments can be made via net banking, debit card, or UPI.
What if You Miss the Deadline?
Failing to pay the required advance tax instalment by the due date attracts penal interest 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 amount of the shortfall. For instance, if you fall short of the 45% cumulative payment by September 15, a 1% monthly interest will be charged for three months on the deficit amount. Furthermore, if you pay less than 90% of your total assessed tax by the end of the financial year (March 31), you will also be liable for interest under Section 234B, which is charged at 1% per month from April 1 of the following year until the tax is fully paid.
