What is Advance Tax and Who Should Pay It?
Advance tax is essentially a 'pay-as-you-earn' system for income tax. Instead of paying a large lump sum at the end of the financial year, the Income Tax Act requires you to pay tax in instalments throughout the year in which the income is earned. This
applies to any taxpayer—be it an individual, freelancer, or business owner—whose estimated net tax liability for the financial year is ₹10,000 or more. This liability is calculated after accounting for any Tax Deducted at Source (TDS). So, if you have income sources outside of your salary, such as from freelancing, capital gains, rental income, or interest from fixed deposits, you likely need to pay advance tax. However, salaried individuals whose employers already deduct adequate TDS might not have this liability. Additionally, resident senior citizens (aged 60 and above) who do not have any income from a business or profession are exempt from paying advance tax.
The Advance Tax Instalment Schedule for FY 2026-27
For the Financial Year 2026-27, the Income Tax Department has set four key dates for advance tax payments. It's crucial to understand that these percentages are cumulative. By the second deadline, you need to have paid a total of 45% of your estimated tax, not an additional 45%. The schedule for individuals and corporate taxpayers is as follows: By June 15, 2026: At least 15% of your total estimated tax. By September 15, 2026: A cumulative total of at least 45% of your total estimated tax. By December 15, 2026: A cumulative total of at least 75% of your total estimated tax. By March 15, 2027: The full 100% of your estimated tax liability. Taxpayers who opt for the presumptive taxation scheme under Section 44AD or 44ADA have a simpler path: they can pay their entire advance tax in a single instalment by March 15, 2027.
Calculating Your Second Instalment Due on September 15
The calculation for the second instalment requires you to have a clear estimate of your total annual income. Here’s a step-by-step guide: 1. Estimate Total Annual Income: Project your income from all sources for the entire financial year (April 1, 2026, to March 31, 2027). This includes salary, business profits, capital gains, rent, interest, etc. 2. Calculate Total Tax Liability: Apply the applicable income tax slab rates for FY 2026-27 to your estimated total income. Don't forget to add the 4% health and education cess. 3. Deduct TDS/TCS: From your total tax liability, subtract all the TDS and TCS that has been or will be deducted during the year. The resulting figure is your net advance tax liability for the year. 4. Determine the Second Instalment Amount: By September 15, you must have paid at least 45% of your net advance tax liability. If you paid the first instalment of 15% by June 15, you now need to pay the difference. For example, if your total advance tax liability for the year is ₹1,00,000, you should have paid ₹15,000 by June 15. For the September 15 deadline, your cumulative payment should be ₹45,000 (45% of ₹1,00,000). Therefore, the amount due for the second instalment is ₹30,000 (₹45,000 minus the ₹15,000 already paid).
The Consequences of Missing the Deadline
Failing to pay the correct amount of advance tax by the due dates attracts interest penalties under the Income Tax Act. If you pay less than the required cumulative amount for an instalment, interest under Section 234C is levied at a rate of 1% simple interest per month for a period of three months on the shortfall amount. For instance, if you fall short on your September 15 payment, this 1% monthly interest will be applied for three months. Additionally, if your total advance tax paid by the end of the financial year (March 31) is less than 90% of your total assessed tax, a separate interest under Section 234B is charged at 1% per month from April 1 of the following year until the tax is fully paid. These penalties are mandatory and cannot be waived, making timely compliance essential.
How to Pay Your Advance Tax Online
Paying your advance tax online is a straightforward process using Challan 280. Here's how you can do it: 1. Visit the official Income Tax e-filing portal (incometax.gov.in) and go to the 'e-Pay Tax' section. 2. You will need to enter your PAN and mobile number, and then verify with an OTP. 3. On the payment screen, select 'Income Tax' and the correct Assessment Year (for FY 2026-27, the AY is 2027-28). 4. Under 'Type of Payment', choose '(100) Advance Tax'. 5. Fill in the tax amount and choose your preferred payment method, such as Net Banking, Debit Card, or UPI. 6. After a successful transaction, a challan receipt will be generated. It contains the BSR code and challan serial number, which you must save as proof of payment and mention when filing your annual income tax return.
