What 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' scheme, it applies to income on which tax is not automatically deducted at source
(TDS) or where TDS is insufficient. The core principle is that if your total tax liability for the financial year is estimated to be ₹10,000 or more, you are required to pay tax in advance. This ensures a steady flow of revenue for the government and prevents a heavy financial burden on taxpayers at the time of filing their returns.
Who Is Required to Pay?
The advance tax rule applies to all taxpayers—including salaried individuals, freelancers, and business owners—whose net tax liability for the year exceeds ₹10,000. While a salaried person's employer typically handles tax through TDS, advance tax becomes applicable if they have significant additional income from other sources. This includes rental income from property, capital gains from selling shares or mutual funds, interest from fixed deposits, or freelance work. The only major exemption is for resident senior citizens (aged 60 and above) who do not have any income from a business or profession; they are not required to pay advance tax.
The September 15 Deadline Explained
For the Financial Year 2026-27, advance tax is paid in four instalments. September 15, 2026, is the due date for the second instalment. By this date, you are required to have paid a cumulative total of at least 45% of your total estimated tax liability for the year. If you paid the first instalment of 15% by June 15, you now need to pay an additional 30% to meet the 45% cumulative threshold. It is crucial to re-evaluate your income for the year before this deadline to ensure your payment is accurate, as income from sources like capital gains can fluctuate.
Calculating Tax on Various Incomes
To determine your liability, you must first estimate your total income for the entire financial year (April 1, 2026, to March 31, 2027) from all sources. For rental income, add the total rent you expect to receive. For interest income, estimate the total interest you will earn from bank deposits, bonds, etc. For capital gains, include any profits you have already made from selling assets like stocks or property. After estimating your total income, subtract any eligible deductions (like those under Section 80C). Calculate the tax on this net income using the applicable slab rates. Finally, subtract any TDS that has already been or will be deducted. If the remaining amount is over ₹10,000, that is your advance tax liability.
What If You Miss the Deadline?
Failing to pay the required amount of advance tax by the due date has financial consequences. The Income Tax Act levies interest for non-payment or short payment. Interest under Section 234C is charged at 1% per month for a period of three months on the amount of shortfall for the September 15 instalment. Furthermore, if your total advance tax paid by March 31 is less than 90% of your final assessed tax, interest under Section 234B at 1% per month will be levied from April 1 of the next year until you pay the full tax. These interest charges are mandatory and can significantly increase your total tax outgo, making timely compliance essential.
