Advance Tax

What it means

Advance tax means paying your income tax during the year in which you earn the income, instead of paying it all at once when you file your return. People also call it “pay as you earn”. Salaried people usually do not need to think about it because the employer deducts TDS every month. It matters for business owners, professionals, freelancers, and anyone with large interest, rent or capital gains income that is not fully covered by TDS.

How it works

First estimate your total income for the tax year and work out the tax on it. Then subtract the TDS and TCS you expect. If what is left is ₹10,000 or more, you must pay advance tax in instalments.

• By 15 June: at least 15% of the estimated tax

• By 15 September: at least 45% (cumulative)

• By 15 December: at least 75% (cumulative)

• By 15 March: 100%

• Businesses and professionals using presumptive taxation (sections 44AD and 44ADA of the old Act) can pay the whole amount in one go by 15 March.

• A resident senior citizen (60 or above) who has no business or professional income does not have to pay advance tax.

You pay through the e-Pay Tax service on the income tax portal, choosing advance tax as the type of payment. If you pay too little or pay late, interest is charged at 1% a month (sections 234B and 234C of the old Act).

Example

Ritu is a freelance designer. For tax year 2026-27 she estimates her total tax at ₹1,20,000. Her clients will deduct TDS of ₹20,000.

• Net tax payable: ₹1,20,000 minus ₹20,000 = ₹1,00,000. This is more than ₹10,000, so advance tax applies.

• By 15 June 2026: 15% of ₹1,00,000 = ₹15,000

• By 15 September 2026: 45% = ₹45,000, so a further ₹30,000

• By 15 December 2026: 75% = ₹75,000, so a further ₹30,000

• By 15 March 2027: 100% = ₹1,00,000, so the last ₹25,000

Say she misses the June instalment and pays it along with the September one. Interest is roughly 1% a month for 3 months on ₹15,000, which comes to ₹450.

Key points to remember

• Revise your estimate during the year. If income rises after a big project or a property sale, top up the next instalment.

• Capital gains or lottery winnings that come in suddenly can be covered in the instalments due after you receive them, without interest for the earlier dates.

• Interest also applies if you pay less than 90% of your final tax by 31 March, even if you never missed a date.

• Save every challan. Check that the payments show in Form 26AS or the AIS before you file your return.