What Exactly Is Advance Tax?
Advance tax is an income tax payment system that operates on a 'pay-as-you-earn' principle. Instead of paying a large lump sum at the end of the financial year, taxpayers with significant income from sources not covered by Tax Deducted at Source (TDS)
must pay their tax in instalments throughout the year. This ensures a steady flow of revenue for the government and prevents a heavy financial burden on taxpayers at year-end. The system requires you to estimate your total income for the year and pay tax on it in four quarterly payments.
Who Needs to Pay Advance Tax?
According to Section 208 of the Income Tax Act, any individual, freelancer, or business whose estimated net tax liability for the financial year is ₹10,000 or more is required to pay advance tax. This applies to various income types, including capital gains, rental income, interest from deposits, and business profits. Even salaried individuals must pay advance tax if they have substantial non-salary income that isn't covered by their employer's TDS deductions. However, there is a key exemption: resident senior citizens (aged 60 or above) who do not have any income from a business or profession are not required to pay advance tax.
The Instalment Due by September 15
For the financial year 2026-27, the second instalment of advance tax is due on or before September 15, 2026. By this date, you must have paid a cumulative total of at least 45% of your total estimated tax liability for the year. It is important to understand that this percentage is cumulative. It means the 15% you paid for the first instalment (due on June 15) is included in this 45% total. Therefore, for this second instalment, you need to pay an additional 30% of your total tax liability. Taxpayers who opt for the presumptive taxation scheme under sections 44AD and 44ADA have a different rule; they can pay 100% of their tax in a single instalment by March 15, 2027.
How to Calculate and Pay Your Instalment
To calculate your advance tax, first, estimate your total income for the financial year (April 1, 2026, to March 31, 2027) from all sources. From this, subtract any applicable deductions (like those under Section 80C) to arrive at your estimated taxable income. Calculate the tax on this income using the applicable slab rates for FY 2026-27. After computing the total tax, deduct any TDS or TCS that has already been paid on your behalf. If the remaining tax liability is ₹10,000 or more, you must pay advance tax. For the September 15 deadline, ensure that the total tax paid (including the June instalment) reaches 45% of this final liability. Payment can be made online through the Income Tax Department's e-Pay Tax portal using Challan 280, selecting 'Advance Tax (100)' as the payment type.
What If You Miss the Deadline?
Failing to pay the required amount of advance tax by the due date attracts interest penalties. If you pay less than 45% of your total tax liability by September 15, interest under Section 234C of the Income Tax Act will be levied. The penalty is a simple interest of 1% per month on the shortfall amount, calculated for a period of three months. For example, if your total tax is ₹1 lakh and you only paid the first instalment of ₹15,000, you have a shortfall of ₹30,000 for the September deadline (45% of ₹1 lakh = ₹45,000, minus the ₹15,000 paid). Interest would be charged on this ₹30,000. Additionally, if your total advance tax paid by March 31 is less than 90% of your final assessed tax, a separate interest under Section 234B is charged at 1% per month from the beginning of the next financial year until the tax is paid.
