What Exactly Is Advance Tax?
Think of advance tax as a 'pay-as-you-earn' system for your income tax. Instead of paying your entire tax liability in a lump sum at the end of the financial year, the government requires you to pay it in instalments throughout the year in which you earn the income.
This ensures a steady flow of revenue for the government and prevents a heavy, single payment burden for taxpayers. The rule is simple: if your total estimated tax liability for the financial year is ₹10,000 or more after accounting for any Tax Deducted at Source (TDS), you are required to pay advance tax.
Who Is Required to Pay?
The liability for advance tax extends to a wide range of individuals, not just business owners. You are required to pay it if you are a salaried employee with significant other income, a freelancer, or a business owner whose tax liability exceeds the ₹10,000 threshold. This other income can come from various sources like capital gains from stocks or property, interest on fixed deposits, rental income, or dividends. Essentially, if you have income streams where tax isn't deducted at the source, you need to assess your advance tax liability. However, there is an important exemption: resident senior citizens (aged 60 and above) who do not have any income from a business or profession are not required to pay advance tax.
Understanding the September 15 Instalment
The advance tax schedule is divided into four quarterly instalments. The upcoming deadline on September 15, 2026, is for the second instalment of the financial year 2026-27. By this date, you must have paid at least 45% of your total estimated annual tax liability. The first instalment, due on June 15, required a payment of at least 15%. The subsequent deadlines are December 15 (for 75% of the liability) and March 15 (for 100%). These percentages are cumulative, meaning the amount you pay for the September instalment should bring your total payment for the year up to the 45% mark.
A Simple Guide to Calculating Your Liability
Calculating your advance tax might seem complex, but it can be broken down into a few 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, freelance income, interest, capital gains, and any other earnings. Next, subtract any applicable deductions you plan to claim, such as those under Section 80C or 80D. Apply the income tax slab rates for your chosen tax regime (old or new) to this net taxable income to determine your total tax liability for the year. Finally, subtract any TDS that has already been or will be deducted by your employer or clients. If the remaining amount is over ₹10,000, that is your advance tax liability for the year. For the September 15 deadline, ensure you have paid 45% of this final amount.
How to Pay Advance Tax Online
The process of paying advance tax is entirely online and straightforward. You need to use Challan ITNS 280. Visit the official Income Tax e-Filing portal and find the 'e-Pay Tax' option. You will need to enter your PAN, select the correct Assessment Year (for income earned in FY 2026-27, the AY is 2027-28), and choose 'Advance Tax' (code 100) as the type of payment. After filling in the tax amount, you can complete the payment using net banking, a debit card, or UPI. Once the payment is successful, make sure to download and save the challan receipt, as it is proof of your tax payment and will be required when filing your income tax return.
The Cost of Missing the Deadline
Failing to pay or underpaying your advance tax instalments has financial consequences in the form of interest penalties. Interest under Section 234C of the Income Tax Act is levied for the deferment of individual instalments. This is calculated at a rate of 1% simple interest per month for three months on the shortfall amount for the June and September instalments. Additionally, if the total advance tax paid by the end of the financial year (March 31) is less than 90% of your total assessed tax, interest under Section 234B is charged at 1% per month on the deficit from the beginning of the next financial year until the tax is fully paid.
