What is Advance Tax and Who Must Pay It?
Advance tax is a 'pay as you earn' system for income tax. Instead of a large, single payment at the end of the financial year, you pay your tax in instalments throughout the year. This applies to anyone whose total tax liability for the year is expected
to be ₹10,000 or more. This includes salaried individuals who have additional income from sources like freelancing, rent, capital gains, or interest on deposits. Essentially, if the Tax Deducted at Source (TDS) by your employer doesn't cover your entire tax outgo for the year, you likely need to pay advance tax. However, resident senior citizens (aged 60 and above) who do not have income from a business or profession are exempt from this requirement.
Why the September 15 Deadline Is Crucial
The Income Tax Department sets four deadlines for advance tax payments. The upcoming date, September 15, 2026, is the deadline for the second instalment for the Financial Year 2026-27. By this date, you are required to have paid at least 45% of your total estimated annual tax liability. This percentage is cumulative, meaning it includes the 15% you should have paid by the first deadline on June 15. Missing this deadline or underpaying the required amount leads to interest penalties under Section 234C of the Income Tax Act, typically charged at 1% per month for three months on the shortfall.
Step 1: Consolidate All Your Income Sources
To accurately estimate your tax, the first step is to compile a comprehensive list of all your income streams for the financial year (April 1, 2026, to March 31, 2027). This isn't just about your primary salary. You need to project your earnings from every source, which could include: - Gross salary (before any deductions). - Freelance or business income. - Capital gains from selling shares, mutual funds, or property. - Rental income from house property. - Interest earned from fixed deposits, savings accounts, or bonds. - Dividend income. - Any other professional fees or earnings. Being thorough at this stage is key to an accurate calculation.
Step 2: Calculate Your Net Taxable Income
Once you have an estimate of your total gross income, you can reduce it by claiming eligible deductions to arrive at your net taxable income. This involves subtracting amounts for investments and expenses allowed under various sections of the Income Tax Act. Common deductions include those under Section 80C (for EPF, PPF, life insurance premiums, ELSS), Section 80D (for health insurance premiums), and the standard deduction from salary income. After subtracting all applicable deductions from your gross estimated income, you will have the figure on which your tax will be calculated.
Step 3: Estimate Your Total Tax Liability
Apply the relevant income tax slab rates for the Financial Year 2026-27 to your net taxable income. You must decide whether to use the Old Tax Regime (with deductions) or the New Tax Regime (with lower slab rates but fewer deductions). After calculating the basic tax, add the 4% health and education cess. The resulting figure is your gross tax liability for the year. From this amount, subtract the total TDS that has already been deducted or will be deducted by your employer and other payers during the year. You can verify this using your Form 26AS and Annual Information Statement (AIS) on the tax portal. The final amount is your net tax liability, which is the basis for your advance tax payments.
How to Pay Your Advance Tax
Paying your advance tax is a straightforward online process. You need to use Challan 280 on the government's income tax payment portal. Visit the e-Pay Tax section on the income tax website, enter your PAN, select the Assessment Year (which would be 2027-28 for income earned in FY 2026-27), and choose 'Advance Tax' as the type of payment. You can then complete the payment using net banking, debit card, or other available online payment modes. After successful payment, a challan receipt with a BSR code and challan serial number will be generated. It is crucial to download and save this receipt as proof of payment.
