Advance Tax

Advance tax is the income tax that a taxpayer pays in advance — during the financial year in which income is earned — rather than in a lump sum at the time of filing the income tax return. The concept exists because tax on income is notionally due as income is earned; the advance tax regime ensures the government receives tax revenue throughout the year rather than only after the year ends.

Who Must Pay Advance Tax?

Advance tax applies to any person whose estimated tax liability for the financial year exceeds ₹10,000, after deducting Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) that will be credited to their account.

This includes:

• Salaried individuals with significant other income (interest, rental income, capital gains, freelance fees)
• Self-employed professionals (doctors, consultants, freelancers, designers)
• Business owners and partners in firms
• Companies and LLPs (regardless of the ₹10,000 threshold — companies always pay advance tax)
• Non-resident Indians (NRIs) with taxable income in India

Who is exempt:

• Senior citizens (aged 60 or above) who do not have income from business or profession are exempt from advance tax. They pay all tax as self-assessment tax at the time of filing.
• Individuals for whom TDS fully covers their tax liability (all income is TDS-deducted and TDS amount meets or exceeds tax liability) are effectively not required to pay additional advance tax.

Advance Tax Instalment Schedule

For all taxpayers other than those eligible for the presumptive taxation scheme (Section 44AD/44ADA):

Instalment	Due Date	Cumulative % of Estimated Tax
1st instalment	15 June	15%
2nd instalment	15 September	45%
3rd instalment	15 December	75%
4th instalment	15 March	100%

For presumptive taxpayers (Section 44AD / 44ADA): Only one instalment is required — 100% by 15 March of the financial year. This simplified schedule is a benefit of opting for presumptive taxation.

The percentages are cumulative. So by 15 September, the total advance tax paid must be at least 45% of the full-year estimated liability (not just 30% for that quarter).

How to Calculate Advance Tax

1. Estimate your gross total income for the full financial year — salary, business income, capital gains, rental income, interest, any other source
2. Compute taxable income by deducting applicable deductions (Section 80C, 80D, HRA, etc.)
3. Calculate income tax on taxable income at applicable slab rates (or special rates for LTCG, etc.) and add surcharge and cess
4. Deduct TDS already deducted and expected to be deducted on your income for the full year
5. If the balance exceeds ₹10,000 — you must pay advance tax in the instalments described above

It is an estimate, not a precise calculation. If actual income turns out different, the final liability is adjusted at the time of filing the income tax return.

How to Pay Advance Tax

Advance tax is paid through the Income Tax e-filing portal (incometax.gov.in) or the TIN-NSDL portal:

1. Log in and navigate to e-Pay Tax (or Challan 280 on NSDL)
2. Select the assessment year (for FY 2024-25, the assessment year is 2025-26)
3. Select Type of Payment: Advance Tax (100)
4. Enter the amount and pay through net banking, UPI or debit card
5. Save the challan (BSR code, challan serial number and date) — this is needed when filing the ITR

Interest for Non-Payment or Short Payment

Failure to pay advance tax or paying less than required attracts interest under two sections of the Income Tax Act:

Section 234B: Interest at 1% per month (or part of month) on the unpaid tax if less than 90% of the assessed tax is paid as advance tax. Interest runs from 1 April of the assessment year until the date of actual payment.

Section 234C: Interest at 1% per month for deferment of each instalment — i.e., paying less than the required cumulative percentage by each due date:

• Less than 15% by 15 June: 3 months' interest on the shortfall
• Less than 45% by 15 September: 3 months' interest on the shortfall from 45%
• Less than 75% by 15 December: 3 months' interest on the shortfall from 75%
• Less than 100% by 15 March: 1 month's interest on the shortfall from 100%

Section 234C interest does not apply if the shortfall is due to income under the head of capital gains or casual income (winnings from lotteries, etc.) that arose after the previous instalment date — in those cases, remaining tax is required to be paid in the immediately following instalment.

Advance Tax and Capital Gains

Capital gains (from selling property, shares, mutual funds) are often unpredictable during the year. The advance tax rules accommodate this:

• If capital gains arise after 15 September but before 15 December, include the estimated gain in the December instalment
• If capital gains arise after 15 December, include in the March instalment
• No Section 234C interest applies to that portion if you pay it in the first instalment after the gain arose

This practical provision reduces the burden on taxpayers who could not have anticipated the gain earlier in the year.