What Is Advance Tax and Who Should Pay It?
Advance tax operates on a 'pay as you earn' principle. Instead of paying your entire income tax liability in a lump sum at the end of the financial year, you pay it in instalments. This applies to any taxpayer, whether salaried, a freelancer, or a business
owner, whose total tax liability for the year is ₹10,000 or more. While salaried individuals have Tax Deducted at Source (TDS) by their employers, this often only covers their salary income. If you have other earnings, you might need to pay advance tax. However, resident senior citizens (aged 60 and above) without any income from a business or profession are exempt from this rule.
The September 15 Deadline Explained
The government mandates that advance tax be paid in four instalments. The upcoming deadline of September 15, 2026, is for the second instalment of the financial year 2026-27. By this date, you are required to have paid a cumulative total of at least 45% of your total estimated annual tax liability. This includes the 15% that was due by the first deadline on June 15. Missing or underpaying this instalment can lead to interest penalties, making it a date worth marking in your calendar.
Identifying Your 'Extra' Income Sources
The most common reason for a shortfall in advance tax is overlooking non-salaried income. It's crucial to account for all revenue streams. This includes: Interest income from savings accounts, fixed deposits, and bonds.; Capital gains from the sale of stocks, mutual funds, or property.; Rental income from a house or commercial property.; Dividends from shares and mutual funds.; Freelance or consulting income that you receive on the side.; Winnings from lotteries or game shows. Any income source where tax is not deducted at source, or where TDS is deducted at a lower rate than your applicable slab, needs to be considered for your advance tax calculation. You can also declare this income to your employer to have them adjust your TDS accordingly.
How to Calculate Your Advance Tax Liability
Calculating your advance tax might seem complex, but it can be broken down into simple steps. First, estimate your total income from all sources for the entire financial year (April 1, 2026, to March 31, 2027). Second, subtract any applicable deductions (like those under Section 80C). This gives you your estimated taxable income. Third, calculate the tax payable on this income based on the latest income tax slabs. Finally, subtract the TDS that has already been or will be deducted during the year. If the resulting amount is ₹10,000 or more, that's your advance tax liability for the year. For the September 15 deadline, you need to ensure that 45% of this total liability has been paid.
The Consequences of Missing the Deadline
Failing to pay or underpaying your advance tax instalments attracts interest penalties under the Income Tax Act. Interest under Section 234C is levied at 1% per month for a period of three months if you fall short of the 45% cumulative payment by September 15. Furthermore, if your total advance tax paid during the year is less than 90% of your final assessed tax, you will be liable to pay interest under Section 234B. This is also charged at 1% per month on the shortfall from April 1 of the next year until the tax is fully paid. These penalties are designed to encourage timely tax compliance and can significantly increase your total payout if ignored.
How to Pay Your Advance Tax Online
The process of paying advance tax is straightforward and can be done online. You need to use Challan 280 on the official income tax portal. Simply visit the e-Pay Tax section on the portal, select Challan 280, and choose 'Advance Tax' as the type of payment. You will need to fill in your PAN, the correct assessment year (which would be 2027-28 for income earned in FY 2026-27), and other details. You can complete the payment using net banking or a debit card. Once the transaction is successful, you will receive a challan receipt with a BSR code and challan serial number, which serves as proof of payment.
