Advance Tax under Income Tax Act 2025 - Complete Guide
If your net tax liability for the year is ₹10,000 or more, the law does not let you wait until July of next year to settle up. You are expected to pay tax as you earn it, in four instalments spread across the financial year. This is advance tax — and getting it wrong is one of the most common (and most expensive) mistakes salaried professionals, freelancers, and business owners make.
This guide is fully updated for the transition from the Income-tax Act, 1961 to the new Income-tax Act, 2025, which received Presidential assent on 21 August 2025 and became operative from 1 April 2026 (Tax Year 2026-27 onwards). If you are filing or planning for FY 2025-26 (AY 2026-27), the old 1961 Act provisions still apply to you; if you are planning cash flow for the current Tax Year 2026-27, the new Act's Sections 403–408 govern you. We have covered both, with a full section-mapping table.
A quick heads-up if you are reading this in September 2026: the second instalment for Tax Year 2026-27 (45% of your estimated tax) was due on 15 September 2026 — mark your calendar if you haven't paid yet.
What Is Advance Tax?
Advance tax is income tax paid during the financial year in which income is earned, rather than as one lump sum after the year ends. It follows a "pay-as-you-earn" principle, so that the government receives tax revenue steadily through the year instead of in one large instalment.
Under the Income-tax Act, 1961, the charging provision is Section 207, with the ₹10,000 threshold set out in Section 208.
Under the Income-tax Act, 2025, the equivalent charge is Section 403, with the threshold in Section 404.
Both versions of the law say essentially the same thing: if your estimated tax liability for the year, after reducing TDS/TCS already deducted and any reliefs, is ₹10,000 or more, you must pay advance tax.
Who Is Required to Pay Advance Tax
Advance tax applies to every category of assessee once the ₹10,000 threshold is crossed — there is no separate rule for individuals versus companies. In practice, it typically applies to:
- Salaried individuals with income that isn't fully covered by employer TDS — rental income, interest on fixed deposits, capital gains from shares/mutual funds/property, dividend income, or freelance/consulting income on the side.
- Freelancers, consultants, and professionals (doctors, lawyers, architects, designers, YouTubers/content creators) whose income isn't subject to adequate TDS.
- Business owners and proprietors whose profits aren't taxed at source.
- Partnership firms, LLPs, and companies — advance tax is mandatory for them regardless of amount, once liability crosses ₹10,000; corporate due dates and percentages are identical to non-corporate ones.
- Non-resident Indians (NRIs) who have income accruing, arising, or received in India (rental income, capital gains, interest) exceeding the threshold.
- Taxpayers under presumptive taxation (Section 44AD/44ADA of the 1961 Act, renumbered as Section 58/59 under the 2025 Act) — but with a simplified, single-instalment schedule (explained below).
Who Does NOT Need to Pay Advance Tax
There are only two real carve-outs:
- Resident senior citizens (60 years or older) with no business or professional income. If you're a resident individual who turned 60 at any point during the year, and your income is only from salary, pension, house property, capital gains, or other sources (i.e., no business/profession income), you are not required to pay advance tax — you can pay your entire tax liability as self-assessment tax at the time of filing your return, without interest under Section 234B/424. This exemption sits within Section 207 of the 1961 Act (carried forward under Sections 403–404 of the 2025 Act). Note: a senior citizen with business or professional income does not get this exemption.
- Anyone whose net tax payable for the year (after TDS/TCS and reliefs) is below ₹10,000. If your estimated liability doesn't cross this threshold, advance tax simply doesn't apply — regardless of your age, category, or income source.
Everyone else — including salaried employees, once their non-salary tax liability is high enough — falls within the advance tax net.
Advance Tax Due Dates & Instalments
The instalment structure has not changed between the old and new Act — only the section numbers have. Both regular taxpayers and companies follow the same four cumulative milestones.
Current schedule — Tax Year 2026-27 (Income-tax Act, 2025, Section 408)
| Instalment | Due Date | Cumulative Tax Payable |
|---|---|---|
| 1st | On or before 15 June 2026 | 15% of estimated tax liability |
| 2nd | On or before 15 September 2026 | 45% of estimated tax liability |
| 3rd | On or before 15 December 2026 | 75% of estimated tax liability |
| 4th | On or before 15 March 2027 | 100% of estimated tax liability |
Each instalment is cumulative — by the September date, your total year-to-date payment should equal 45% of your final estimated liability, not 45% on top of the June payment. If a due date falls on a bank holiday or Sunday, payment made the next working day is treated as timely under standing CBDT practice.
For comparison, the schedule under the 1961 Act for FY 2025-26 was: 15 June 2025 (15%), 15 September 2025 (45%), 15 December 2025 (75%), and 15 March 2026 (100%).
Special rule for presumptive taxpayers
If you've opted for the presumptive scheme under Section 44AD or 44ADA (1961 Act) — renumbered Section 58/59 (2025 Act) — you don't need to follow four instalments. You can pay 100% of your advance tax in a single instalment, on or before 15 March. This applies to small businesses (turnover up to ₹3 crore under 44AD) and professionals (gross receipts up to ₹75 lakh under 44ADA). Section 44AE-based goods transport operators, however, still follow the regular four-instalment schedule.
How to Calculate Advance Tax: Step-by-Step
- Estimate your total income for the year across all heads — salary, house property, business/profession, capital gains, other sources.
- Apply the tax rates in force (based on the regime you'll opt for — old or new/default) to arrive at gross tax, then add applicable surcharge and 4% health & education cess.
- Subtract eligible rebates and reliefs (e.g., Section 87A rebate, foreign tax credit).
- Subtract TDS and TCS you expect to be deducted/collected during the year.
- The balance is your advance tax payable, which you then split across the instalment percentages above.
Worked example
Suppose a professional's estimated total income for the year works out to a tax liability of ₹70,000, and ₹20,000 is expected to be covered by TDS. Advance tax payable = ₹50,000.
| Due Date | Cumulative % | Cumulative ₹ | Pay Now ₹ |
|---|---|---|---|
| 15 June | 15% | 7,500 | 7,500 |
| 15 September | 45% | 22,500 | 15,000 |
| 15 December | 75% | 37,500 | 15,000 |
| 15 March | 100% | 50,000 | 12,500 |
If a lump-sum or unpredictable item — like capital gains, lottery winnings, or a first-time business income — arises later in the year, you're only required to include tax on it from the instalment falling due after it arises. No interest is charged on that portion for earlier instalments, provided you pay it by the next due date (or by 31 March, if it arises after the March instalment).
Interest for Non-Payment or Short Payment of Advance Tax
Missing or under-paying your instalments triggers interest — this is where most people lose money unnecessarily.
| Old Section (1961) | New Section (2025) | When It's Triggered | Rate |
|---|---|---|---|
| 234A | 423 | Return filed after the due date, with unpaid tax | 1% per month, simple, from due date to filing date |
| 234B | 424 | Advance tax paid is nil, or less than 90% of assessed tax | 1% per month, simple, from 1 April after year-end to date of payment |
| 234C | 425 | Any instalment falls short of the required cumulative % | 1% per month, simple, on the shortfall for that instalment |
Section 234B/424 example
Assessed tax is ₹2,00,000; you've paid ₹1,40,000 through the year (TDS + advance tax) — that's below the 90% threshold (₹1,80,000). If you clear the balance via self-assessment tax on 20 July, interest applies for April–July (4 months): ₹60,000 shortfall × 1% × 4 = ₹2,400.
Section 234C/425 example
Total liability ₹2,00,000. You pay nothing until 15 December (₹1,50,000), then clear the rest by 15 March.
| Instalment | Required (cum.) | Paid (cum.) | Shortfall | Interest |
|---|---|---|---|---|
| 15 Jun (15%) | 30,000 | 0 | 30,000 | 900 (3 months) |
| 15 Sep (45%) | 90,000 | 0 | 90,000 | 2,700 (3 months) |
| 15 Dec (75%) | 1,50,000 | 1,50,000 | 0 | 0 |
| 15 Mar (100%) | 2,00,000 | 2,00,000 | 0 | 0 |
| Total | ₹3,600 |
Notice that "catching up" by December doesn't erase the interest already accrued for missed June and September deadlines — each milestone is checked independently.
A useful tolerance: for the first two instalments only, no 234C/425 interest applies if you've paid at least 12% by 15 June or 36% by 15 September (instead of the full 15%/45%) — this gives some breathing room for early-year income estimates.
How to Pay Advance Tax Online
- Go to the Income Tax e-filing portal and select "e-Pay Tax" (PAN + OTP works without logging in).
- Choose the correct Act — "Income Tax Act, 2025" for Tax Year 2026-27 payments (older-year payments still route through the 1961 Act).
- Select minor head "Advance Tax (100)" — not "Self-Assessment Tax (300)".
- Enter the tax, surcharge, cess, and interest components separately.
- Pay via net-banking, UPI, NEFT/RTGS, or card, and save the generated challan (CRN, BSR code, challan serial number) — you'll need these while filing your return.
Income-tax Act, 1961 vs Income-tax Act, 2025: Advance Tax Section Mapping
The new Act reorganises and renumbers provisions but keeps the underlying policy — threshold, percentages, due dates, and interest rates — unchanged.
| Subject | 1961 Act Section | 2025 Act Section |
|---|---|---|
| Liability for advance tax (charge) | 207 | 403 |
| Conditions of liability — ₹10,000 threshold | 208 | 404 |
| Computation of advance tax | 209 | 405 |
| Payment of advance tax on AO's order | 210 | 406 |
| AO's order — amendment/further directions | 210 | 407 |
| Instalments of advance tax & due dates | 211 | 408 |
| Presumptive cases — single instalment | 211 (proviso) | 408(2) |
| Assessee deemed to be in default | 218 | 409 |
| Credit for advance tax paid | 219 | 410 |
| Interest — default in furnishing return | 234A | 423 |
| Interest — default in payment of advance tax | 234B | 424 |
| Interest — deferment of instalments | 234C | 425 |
| Presumptive taxation — small business | 44AD | 58 |
| Presumptive taxation — professionals | 44ADA | 59 |
Note: Sections 407, 409, and 410 correspond to connected machinery provisions (order amendment, default, and credit) — always verify exact text against the bare Act before relying on them for formal filings or opinions.
Important transition point: The Income-tax Act, 2025 applies to income arising on or after 1 April 2026 (Tax Year 2026-27 onwards). Any advance tax obligation relating to FY 2025-26 — including the 15 March 2026 instalment — remains governed by the Income-tax Act, 1961, since that income pre-dates the new law.
Common Mistakes to Avoid
- Ignoring side income: Many salaried taxpayers assume employer TDS covers everything and forget rental income, FD interest, or capital gains — leading to a 234B/424 surprise at filing time.
- Underestimating the 90% rule: Aim to have at least 90% of your final tax liability covered by advance tax + TDS by 31 March — this is the most common interest trap.
- Treating instalments as independent, not cumulative: Each due date is a cumulative checkpoint, not a fresh 15%/30%/30%/25% slice.
- Assuming presumptive taxpayers are exempt: They're not exempt — they simply get a single 15 March instalment instead of four.
- Overlooking the senior citizen condition: The exemption only applies if there's no business or professional income — many retirees running a small consultancy or business miss this distinction.
Frequently Asked Questions
Q1. What is the minimum tax liability that triggers advance tax? ₹10,000 or more, after reducing TDS/TCS and reliefs, for the financial/tax year — under both Section 208 (1961 Act) and Section 404 (2025 Act).
Q2. Do salaried employees need to pay advance tax? Only if their tax liability from non-salary income (rent, capital gains, interest, freelance work, etc.) that isn't covered by TDS crosses ₹10,000 for the year.
Q3. Are senior citizens exempt from advance tax? Yes, but only resident senior citizens (60+) with no business or professional income. Those with business/professional income must pay advance tax like anyone else.
Q4. What happens if I miss an advance tax instalment? You'll owe simple interest at 1% per month under Section 234C (old)/425 (new) for the shortfall in that instalment, and potentially Section 234B/424 interest too if your total advance tax payment for the year falls below 90% of your final assessed tax.
Q5. Can I revise my advance tax estimate mid-year? Yes. You can increase or decrease later instalments based on updated income estimates — there's no penalty for paying more than needed in an earlier instalment, and later instalments can be adjusted downward if your income estimate reduces.
Q6. Is advance tax applicable under both the old and new income tax regimes? Yes. Advance tax is a payment mechanism, not a deduction — it applies regardless of which regime (old or default new regime under Section 115BAC/1961, now Section 202/2025) you choose.
Q7. Which Act governs my advance tax right now — the 1961 Act or the 2025 Act? For income earned from 1 April 2026 onward (Tax Year 2026-27), the Income-tax Act, 2025 applies. Income earned up to 31 March 2026 (FY 2025-26) remains governed by the Income-tax Act, 1961.
A Note on Liability
Advance tax isn't optional paperwork — it's a legal obligation the moment your annual tax liability crosses ₹10,000, and the interest for getting it wrong compounds quickly. The good news: the core rules — the ₹10,000 threshold, the 15/45/75/100% instalment ladder, and the senior-citizen carve-out — remain unchanged as India transitions from the Income-tax Act, 1961 to the Income-tax Act, 2025. What's changed is only the section numbering (207→403, 208→404, 211→408, 234B→424, 234C→425), so if you understood advance tax under the old law, you already understand it under the new one.
This article is intended for general information and educational purposes only. It does not constitute legal or tax advice, and section references should be verified against the applicable bare Act, Finance Act, and Income-tax Rules before being relied upon for return filing or formal opinions. Please consult a qualified Chartered Accountant or tax professional for advice specific to your situation.
