Advance Tax in India: Who Pays It, When, and How to Calculate It

India's income tax system operates largely on a pay-as-you-earn basis. For salaried employees, employers deduct TDS each month, approximating this in real time. But for self-employed individuals, freelancers, business owners, investors with capital gains or dividend income, and anyone else whose tax is not fully covered by TDS, the Income Tax Act mandates advance tax — payment of estimated tax liability in instalments during the financial year itself, rather than as a lump sum at filing time.

Who Must Pay Advance Tax?

You are liable to pay advance tax if your estimated tax payable for the year (after TDS) is ₹10,000 or more.

Common situations that trigger advance tax liability:

• Freelancers, consultants, and self-employed professionals
• Business owners
• Investors with capital gains (selling shares, property, mutual funds)
• Individuals receiving high dividend income
• Salaried employees with significant income from other sources (rental, interest, capital gains)

Senior citizens (aged 60+) who do not have business income are exempt from advance tax.

Advance Tax Due Dates (FY 2025-26)

If 15th falls on a holiday or Sunday, the next working day is the due date.

How to Calculate Advance Tax

Step 1: Estimate total income for the year
        (salary + business/freelance income + capital gains + rental + interest)

Step 2: Apply eligible deductions (80C, 80D, 24b, etc.)

Step 3: Compute gross tax liability on estimated taxable income

Step 4: Subtract TDS already deducted or expected to be deducted

Step 5: If remaining liability > ₹10,000 → Pay advance tax

Example:
Estimated total income        : ₹18,00,000
Tax on ₹18L (new regime)      : ₹2,10,000 (approx, incl. cess)
Expected TDS from employer    : ₹1,20,000
Remaining liability           : ₹90,000 → Advance tax required

1st instalment (by 15 Jun) : ₹90,000 × 15% = ₹13,500
2nd instalment (by 15 Sep) : ₹90,000 × 30% = ₹27,000 (cumulative 45%)
3rd instalment (by 15 Dec) : ₹90,000 × 30% = ₹27,000 (cumulative 75%)
4th instalment (by 15 Mar) : ₹90,000 × 25% = ₹22,500 (cumulative 100%)

Use our income tax calculator to estimate your total liability before computing instalments.

Penalty for Non-Payment: Sections 234B and 234C

If you fail to pay advance tax or underpay, interest is charged:

• Section 234B: If advance tax paid is less than 90% of the assessed tax, interest @ 1% per month (or part of month) is charged from 1 April to the date of payment of self-assessment tax.
• Section 234C: If you miss individual instalments or pay less than the required cumulative percentage, interest @ 1% per month for 3 months is charged for the first three instalments and for 1 month on the last instalment.

Example of 234C interest:
Missed 2nd instalment (15 Sep) shortfall: ₹27,000
Interest @ 1% per month × 3 months = ₹810

These amounts may seem small individually but compound across missed instalments.

How to Pay Advance Tax

1. Go to the Income Tax e-Filing portal or bank's net banking.
2. Select Challan 280 (payment of income tax).
3. Choose "Advance Tax" as the type (Code 100).
4. Enter your PAN, assessment year (AY 2026-27 for FY 2025-26), and the amount.
5. Complete payment — you will receive a BSR code and challan serial number.
6. Save the receipt; the payment will appear in Form 26AS Part C within a few days.

Capital Gains and Advance Tax

Capital gains are often unpredictable — you may sell shares or a property mid-year. The advance tax rules account for this: capital gains that arise after the due date of an instalment are assessed proportionately. If you sell a property in February 2026 (after all three instalments have passed), you must pay the entire remaining tax by 15 March 2026 to avoid 234C interest.

Presumptive Taxation Scheme (Section 44AD/44ADA)

Small businesses and professionals opting for presumptive taxation under Section 44AD or 44ADA may pay their entire advance tax liability in a single instalment by 15 March instead of the four-instalment schedule. This simplification is available only if income is within the prescribed limits (₹2 crore for businesses, ₹75 lakh for professionals under 44ADA).

Conclusion

Advance tax discipline separates those who face penalty interest every year from those who do not. A simple mid-year estimate of your income — factoring in capital gains, freelance income, and rental receipts alongside salary — is all it takes to compute and pay the correct instalments. The effort is minimal; the cost of ignoring it adds up.

These figures are estimates for educational purposes. Consult a SEBI-registered advisor for personalised advice.