Advance Tax Explained: Who Pays, How Much, and By When

The most common myth about advance tax is that it''s a business owners'' obligation. Walk into any conversation about it among salaried professionals and someone will say "I don''t have a business, so this doesn''t apply to me." Sometimes they''re right. Often they''re not. The law makes no distinction between salary income and other income for advance tax purposes — if your total tax liability for the year, after TDS, exceeds ₹10,000, you owe advance tax in four instalments. A salaried filer who sold equity mutual funds with ₹2 lakh of LTCG, or who rented out a property generating ₹4 lakh of annual rent, or who picked up freelance projects worth ₹6 lakh on the side, is squarely in advance-tax territory whether or not they realised it.

This article walks through who actually owes advance tax under FY 2026-27 rules, the four-instalment schedule and how to calculate each, the interest mechanics under Sections 424 and 425 of the Income Tax Act, 2025, the senior citizen exemption, and the most common situations where salaried filers get caught out. Use Ganak''s Income Tax Calculator (New Regime) to estimate your full-year liability before each instalment date.

Who Actually Owes Advance Tax

Section 404 of the Income Tax Act, 2025 (which replaced Section 208 of the 1961 Act on 1 April 2026) creates the obligation. The trigger is simple: if your estimated income tax liability for the financial year — after subtracting all TDS expected to be deducted on your income — exceeds ₹10,000, advance tax applies. The legal categories that fall under this definition include almost everyone earning meaningful income beyond pure salary.

The four typical advance tax payers:

Self-employed professionals and freelancers. Consultants, lawyers, doctors with private practice, content creators, and anyone earning under Section 194J (professional fees) or Section 194-O (e-commerce sales). TDS at 10% is deducted but rarely covers the full liability for someone in the 30% slab, leaving substantial advance tax owed.

Business owners and partners. Proprietors, partners in firms, members of LLPs. Income from business or profession typically doesn''t have TDS, so the entire liability is paid through advance tax instalments.

Salaried individuals with significant non-salary income. This is the category most people miss. A salaried filer with substantial rental income, capital gains, fixed deposit interest, dividend income, or freelance work on the side often has non-salary income generating more than ₹10,000 of additional tax liability beyond what TDS covers. They owe advance tax on that non-salary portion.

Companies, LLPs, and other entities. Different schedule and rules apply but the principle is the same. This article focuses on individual taxpayers.

The exception worth knowing: resident senior citizens (age 60 or above) without income from business or profession are completely exempt from advance tax. Pension income, interest income, rental income, capital gains — none of these trigger advance tax for senior citizens. TDS plus self-assessment tax at filing time is sufficient. The exemption is narrow on one dimension: any income reported under "profits and gains of business or profession" disqualifies the senior citizen from the exemption, including freelance consulting income for retirees who still take on professional work.

The Four-Instalment Schedule for FY 2026-27

Section 408 of the Income Tax Act, 2025 sets out the instalment schedule, which is identical to what applied under the old Act. Four due dates, escalating cumulative percentages.

The cumulative percentages aren''t arbitrary. They build in roughly even quarterly increments toward 100% — pay 15% in Q1, another 30% in Q2 (cumulative 45%), another 30% in Q3 (cumulative 75%), and the final 25% in Q4. The asymmetric Q1 (only 15%) recognises that the financial year has just begun and income projections are still tentative.

Two specific exceptions worth knowing:

Presumptive taxpayers (under Section 58 of the new Act, formerly Sections 44AD/44ADA — small businesses and professionals declaring presumptive income) pay 100% of advance tax in a single instalment by 15 March. No quarterly schedule. This is one of the simpler aspects of the presumptive scheme — you compute presumptive income once near year-end and pay everything in one go.

The 5-day grace window. If you pay within 5 days of the due date (i.e., by 20 June, 20 September, etc.), the IT department''s system treats it as on-time for compliance purposes. This isn''t a legal grace period — Section 425 interest still technically applies — but in practice the system accepts payment without enforcement action.

How to Calculate Each Instalment

The formula is straightforward but the calculation requires honest income projection. Three steps for each instalment:

1. Estimate your full-year taxable income. Include all income heads — salary, interest, rental, capital gains, business/freelance — projected through 31 March of the financial year. For salary, use your monthly take-home × 12 plus expected bonuses. For interest, use your existing deposits at current rates. For capital gains, be conservative about what you actually expect to sell during the year.
2. Compute the full-year tax under your chosen regime (new regime is default). Apply slab rates, deduct Section 87A rebate if applicable, add 4% Health and Education Cess and surcharge if income exceeds ₹50 lakh.
3. Subtract total expected TDS for the year. For salary, TDS is roughly tax due on salary minus the ₹60,000 Section 87A rebate (if income ≤ ₹12 lakh). For other heads, TDS is 10% for professional fees, 10% for interest above ₹40,000, 1% for crypto transfers above thresholds, and so on.

The result is your full-year advance tax liability. Apply the cumulative percentage for each instalment, subtract advance tax already paid in earlier instalments, and pay the balance by the due date.

Worked example. Priya is a salaried professional earning ₹18 lakh gross salary in FY 2026-27 under the new regime. Her employer deducts roughly ₹2.36 lakh of TDS through the year. She also has:

• Fixed deposit interest of ₹80,000 (TDS deducted at 10% = ₹8,000)
• Rental income from a let-out flat — net ₹4 lakh after standard 30% deduction (no TDS because tenant pays under ₹50,000/month)
• Capital gains of ₹2 lakh from selling equity shares held for over 12 months (LTCG, 12.5% on ₹75,000 above the ₹1.25 lakh threshold = ₹9,375)

Her total tax liability for FY 2026-27: Tax on salary (₹2.36 lakh under new regime) + Tax on FD interest at slab (₹24,000 at 30%) + Tax on rental income at slab (₹1.2 lakh at 30%) + LTCG (₹9,375) + 4% cess = approximately ₹4.05 lakh total. Less TDS (employer ₹2.36 lakh + bank ₹8,000) = ₹1.61 lakh advance tax owed.

Her four instalments:

• 15 June: 15% of ₹1.61 lakh = ₹24,150
• 15 September: 45% × ₹1.61 lakh = ₹72,450 cumulative, so pay ₹48,300 this instalment
• 15 December: 75% × ₹1.61 lakh = ₹1.2075 lakh cumulative, so pay ₹48,300 this instalment
• 15 March: 100% × ₹1.61 lakh, so pay remaining ₹40,250

Priya pays through Challan ITNS-280 on the IT department''s e-filing portal at incometax.gov.in. Type of payment: "Advance Tax (100)". Assessment Year: 2027-28 for FY 2026-27 income.

The Interest Mechanics Under Sections 424 and 425

This is where most advance tax surprises happen. Both sections charge 1% per month on the relevant shortfall, but they operate differently.

Section 424 (was Section 234B): The end-of-year shortfall test. If your total advance tax paid by 31 March is less than 90% of your assessed tax (the tax that comes out of your final ITR), Section 424 interest applies at 1% per month from 1 April onwards until you pay the balance. This is the "did you pay enough total advance tax" check, regardless of when you paid it. The 90% threshold gives reasonable margin for honest estimation errors.

Section 425 (was Section 234C): The instalment-by-instalment compliance test. If your cumulative payments by each quarterly due date fall short of the prescribed cumulative percentage, interest applies on the shortfall — 3% (representing 1% × 3 months) on the June, September, and December instalment shortfalls, and 1% on the March instalment shortfall. The interest is calculated even if you eventually pay 100% by March 15. Missing a June instalment but making it up in September still costs you 234C interest for those three months. This is the trap most people don''t see coming.

Worked example. Rakesh has a full-year advance tax liability of ₹2 lakh. He pays ₹50,000 on 12 June (slightly late but within the 5-day window — treated as on-time for June). He skips September entirely. He pays ₹1 lakh on 10 December and the remaining ₹50,000 on 13 March. His total payment is ₹2 lakh exactly — full 100% — so Section 424 doesn''t apply.

But Section 425 still kicks in. By 15 September, he should have had 45% × ₹2 lakh = ₹90,000 paid; he had only ₹50,000. The shortfall is ₹40,000, and interest applies at 3% on this shortfall = ₹1,200. By 15 December, he should have had ₹1.5 lakh paid; he had ₹1.5 lakh (after the December payment). No shortfall, no interest for this quarter. But the September shortfall still costs him ₹1,200.

Section 425 is unforgiving because it doesn''t care about your eventual full-year compliance. The interest is locked in the moment a quarterly deadline passes with a shortfall. Pay your instalments on time even if your income is lumpy and uncertain — you can always over-pay and either claim it as the next instalment or take a refund at filing.

The Common Cases Where Salaried Filers Get Caught Out

Most salaried employees never owe advance tax because their employer''s TDS covers the full liability on salary. But several specific situations break this pattern, and these are the cases I see catching people off-guard year after year.

Significant fixed deposit interest. If your FD interest from one bank exceeds ₹40,000 a year, the bank deducts 10% TDS. If your total FD interest is in the ₹1-3 lakh range (common for senior citizens or anyone with meaningful liquid savings) and you''re in the 30% slab, your tax on FD interest is 30% but only 10% has been deducted. The 20-percentage-point gap is your advance tax obligation. ₹2 lakh of FD interest at the 30% slab means ₹40,000 additional tax beyond the bank''s ₹20,000 TDS — well over the ₹10,000 advance tax threshold.

Rental income from let-out property. If your tenant pays you less than ₹50,000 per month, no TDS applies (Section 194-IB threshold). Rent of ₹40,000 × 12 = ₹4.8 lakh annually, with no TDS, generates significant tax liability that you owe entirely through advance tax. Even after the 30% standard deduction under Section 23, ₹3.36 lakh of taxable rental income at the 30% slab is ₹1 lakh of tax — squarely advance tax territory.

Capital gains during the year. Sold equity shares with ₹3 lakh of LTCG? That''s 12.5% on ₹1.75 lakh above the ₹1.25 lakh threshold = ₹21,875. Above the advance tax threshold. The IT department''s 1% TDS only applies to specific securities transactions; most LTCG attracts no TDS at all, so the entire liability falls on advance tax. Same for STCG at 20% — selling shares within 12 months that generate ₹2 lakh STCG means ₹40,000 tax, all advance tax.

Freelance income alongside salary. Picking up consulting projects, content creation work, or freelance assignments while employed. The TDS at 10% on professional fees rarely covers the 30% slab liability. ₹5 lakh of freelance income generates ₹1.5 lakh of tax (₹50,000 TDS, ₹1 lakh advance tax owed).

Cryptocurrency gains. Section 115BBH taxes VDA gains at 30%, with only 1% TDS deducted by Indian exchanges. The 29-percentage-point gap is pure advance tax obligation. ₹1 lakh of crypto gains = ₹30,000 tax, with only ₹1,000 (or less) deducted as TDS through the year.

The pattern: TDS is calibrated to roughly cover salary tax at average slabs, but it consistently under-covers tax on non-salary income at the 30% slab. The shortfall is your advance tax liability whether you noticed it or not.

How to Pay Advance Tax

The mechanics are simple, but the first time can feel intimidating. Five-step flow:

1. Visit incometax.gov.in and either log in (preferred for record-keeping) or use the "Quick Links" section''s e-pay tax option.
2. Select Income Tax (Other than Companies), Type of Payment Advance Tax (100), and Assessment Year 2027-28 (for FY 2026-27 income).
3. Enter the amount you want to pay this instalment.
4. Choose payment method — net banking, UPI, debit card, or NEFT/RTGS. Net banking is fastest for the major Indian banks.
5. Download and save the Challan receipt. The CIN (Challan Identification Number) is your evidence of payment. It will reflect in Form 26AS within 7-10 days.

Track your cumulative advance tax through Form 26AS at the e-filing portal. The "Advance Tax" line shows each instalment with date and amount. Before filing your ITR in July 2027 for FY 2026-27 income, the figures should automatically populate; cross-check against your challan receipts to ensure nothing is missing.

Frequently Asked Questions

Who is required to pay advance tax in India?

Anyone whose estimated income tax liability after TDS exceeds ₹10,000 in a financial year. This includes salaried individuals with significant non-salary income (FD interest, rental, capital gains, freelance work), self-employed professionals, business owners, and partners in firms. Resident senior citizens (60+) without business or professional income are exempt — TDS plus self-assessment tax at filing time is sufficient for them. The ₹10,000 threshold is the net tax owed after subtracting all expected TDS, not gross liability.

What are the advance tax due dates for FY 2026-27?

Four instalments: 15 June 2026 (15% cumulative), 15 September 2026 (45% cumulative), 15 December 2026 (75% cumulative), and 15 March 2027 (100% cumulative). Presumptive taxpayers under Section 58 (formerly Sections 44AD/44ADA) pay the full 100% in a single instalment by 15 March. The schedule is set by Section 408 of the Income Tax Act, 2025, identical to the old Section 211 framework.

What is the difference between Section 234B and Section 234C?

Section 234B (now Section 424 of IT Act 2025) applies when total advance tax paid by 31 March is less than 90% of assessed tax — interest at 1% per month from 1 April onwards. It''s the "did you pay enough total advance tax for the year" test. Section 234C (now Section 425) applies when quarterly instalments fall short of the prescribed cumulative percentages, regardless of full-year compliance — 3% on June/September/December shortfalls and 1% on March shortfall. Section 425 catches people who pay full liability by year-end but missed earlier deadlines.

Are senior citizens exempt from advance tax?

Yes, if they are resident individuals aged 60+ and have no income from business or profession. The exemption covers pension income, interest income, rental income, dividend income, capital gains, and all other non-business heads. Self-assessment tax paid at filing time discharges the full liability without interest. The exception: any income classified as "profits and gains of business or profession" — including consultancy retainers, freelance work, or active business operations — disqualifies the senior citizen from the exemption.

What happens if I miss an advance tax instalment?

Section 425 interest applies at 3% on the shortfall (1% per month for 3 months), even if you eventually pay 100% of full-year liability before year-end. If you''re still short by 31 March beyond 90% of assessed tax, additional Section 424 interest of 1% per month applies from 1 April until the balance is paid. The interest is calculated automatically when you file your ITR. Pay as soon as possible after realising the miss — interest compounds monthly until paid.

Can salaried employees avoid advance tax by adjusting their TDS?

Sometimes. If you have non-salary income, you can voluntarily increase your salary TDS by declaring the non-salary income to your employer through Form 124 (which replaced Form 12BB on 1 April 2026). Your employer will deduct higher TDS on salary to cover the additional liability, eliminating the need for separate advance tax payments. This works for predictable non-salary income (rent, FD interest), less well for variable items like capital gains. It also reduces your monthly take-home substantially, which has its own cash flow implications.

Where do I pay advance tax online?

Through the income tax e-filing portal at incometax.gov.in. Use the e-Pay Tax service either through login or the Quick Links section. Select Challan ITNS-280, choose Type of Payment "Advance Tax (100)", Assessment Year 2027-28 for FY 2026-27, and pay via net banking, UPI, or other accepted methods. Save the Challan Identification Number (CIN) from the receipt — it will reflect in your Form 26AS within 7-10 days and auto-populate into your ITR at filing time.

Sources and Further Reading

This guide is based on Sections 404, 408, 424, and 425 of the Income Tax Act, 2025 (effective 1 April 2026, governing FY 2026-27 onwards) and the corresponding Sections 208, 211, 234B, and 234C of the 1961 Act (governing FY 2025-26 income). For official references:

• Income Tax Department — Tax Payments under the Income Tax Act, 2025
• Income Tax e-Filing Portal — Advance Tax payment portal and Form 26AS
• Salaried Individuals Return Filing Guide — Income Tax Department
• Income Tax India — Section 404, 408, 424, 425 statutory text

Last verified: 13 May 2026. This article will be updated when Budget 2027 is presented and if any advance tax provisions are revised.