Advance tax, sometimes referred to as the "pay-as-you-earn" system, requires taxpayers to pay income tax in instalments during the financial year rather than in a single lump sum at the time of filing the return. This obligation applies under Sections 207 to 211 of the Income Tax Act, 1961, and is enforced through interest provisions under Sections 234B and 234C.
This article explains who must pay advance tax, the instalment dates and percentages for FY 2025-26 (AY 2026-27), the interest consequences of non-compliance, and practical guidance for estimating and computing advance tax.
Who Must Pay Advance Tax?
Under Section 208, advance tax becomes payable when a taxpayer's estimated total tax liability for the financial year exceeds ₹10,000 after considering tax deducted at source (TDS) and tax collected at source (TCS). This threshold applies to all categories of taxpayers:
- Salaried individuals: Generally, TDS deducted by the employer covers the tax liability, so advance tax may not be required unless the employee has additional income sources (rental income, capital gains, interest income, freelance income, or business income). If additional income is substantial and TDS is insufficient, advance tax must be paid.
- Self-employed individuals and professionals: Freelancers, consultants, doctors, lawyers, architects, and other professionals whose income is not subject to TDS at source must estimate their income and pay advance tax if the estimated tax liability exceeds ₹10,000.
- Businesses: All business entities — proprietorships, partnerships, companies, and LLPs — must pay advance tax if their estimated tax liability exceeds the ₹10,000 threshold.
- Capital gains: If you expect to earn capital gains during the year (from the sale of property, shares, mutual funds, or other assets), you must include this in your advance tax computation and pay the tax in the instalment following the quarter in which the gain is expected.
Exception: Resident senior citizens (aged 60 or above) who do not have income from business or profession are exempt from the advance tax provision under Section 207.
Advance Tax Instalment Dates — FY 2025-26
The Income Tax Act prescribes four instalment dates during the financial year, with specific percentage requirements for each instalment. For FY 2025-26 (running from 1 April 2025 to 31 March 2026), the due dates are:
| Instalment | Due Date | Cumulative % of Estimated Tax |
|---|---|---|
| First Instalment | 15 June 2025 | 15% |
| Second Instalment | 15 September 2025 | 45% |
| Third Instalment | 15 December 2025 | 75% |
| Fourth Instalment | 15 March 2026 | 100% |
Important: These are cumulative percentages, not per-instalment amounts. For example, by 15 September 2025, you must have paid at least 45% of your estimated total tax liability for the year. This includes the amounts already paid in the first instalment.
For Taxpayersopting for Section 44AD (Presumptive Taxation)
Businesses and professionals who have opted for the presumptive taxation scheme under Section 44AD or Section 44ADA have a simplified advance tax schedule. They are required to pay the entire advance tax in a single instalment by 15 March of the financial year.
However, if the taxpayer's total tax liability for the year exceeds ₹10,000, the single instalment due date of 15 March applies. If the estimated tax is ₹10,000 or less, no advance tax payment is required.
How to Estimate Advance Tax
Estimating advance tax requires projecting your total income for the financial year and computing the applicable tax. Here is a step-by-step approach:
Step 1: Project Total Income
- Business income: Based on the current year's performance, past trends, confirmed orders, and expected revenue. Consider seasonal variations — for example, businesses in Ghaziabad and NCR may have higher revenue during the festive season (October–December) or at the end of the financial year.
- Salary income: If you have changed jobs or have multiple employments, compute the total salary from all sources. Also consider any perquisites or allowances that may be taxable.
- Capital gains: If you plan to sell any asset during the year, estimate the likely gain. For listed equity shares held for more than 12 months, long-term capital gains above ₹1.25 lakh are taxed at 12.5% (without indexation). For other assets, the applicable rates vary.
- Other income: Interest income from fixed deposits, savings accounts, rental income, dividend income, and any other income source.
Step 2: Compute Total Taxable Income
Deduct applicable deductions under Sections 80C, 80D, 80E, and other applicable chapters from the projected total income to arrive at the estimated taxable income for the year.
Step 3: Compute Tax Liability
Apply the applicable tax rates to the estimated taxable income. For individuals, the new tax regime under Section 115BAC provides a standard deduction of ₹75,000 and revised slabs:
- Up to ₹4,00,000: Nil
- ₹4,00,001 to ₹8,00,000: 5%
- ₹8,00,001 to ₹12,00,000: 10%
- ₹12,00,001 to ₹16,00,000: 15%
- ₹16,00,001 to ₹20,00,000: 20%
- ₹20,00,001 to ₹24,00,000: 25%
- Above ₹24,00,000: 30%
Add health and education cess at 4% and surcharge if applicable.
Step 4: Deduct TDS and TCS
Subtract the estimated TDS and TCS from the total tax liability. The net amount is what you must pay as advance tax.
Step 5: Pay in Instalments
Divide the net tax liability according to the instalment schedule. Use the challan-cum-statement form (Challan 280) for online payment through the Income Tax Department's e-payment portal or through authorized banks.
Section 234B — Interest for Default in Payment of Advance Tax
Section 234B imposes interest if you fail to pay advance tax or if the advance tax paid is less than 90% of your total assessed tax. The interest is calculated as follows:
- If you are required to pay advance tax but have not paid any, interest is charged at 1% per month (or part of a month) on the unpaid amount, from 1 April of the assessment year until the date of payment of the full tax.
- If you have paid some advance tax but it is less than 90% of the assessed tax, interest is charged at 1% per month on the shortfall amount.
Example: If your total tax liability for FY 2025-26 is ₹2,00,000 and you have paid ₹1,70,000 as advance tax by 31 March 2026, the shortfall is ₹30,000 (which is less than the required ₹1,80,000 — 90% of ₹2,00,000). Interest under Section 234B would be charged at 1% per month on ₹30,000 from 1 April 2026 until the date of filing and payment.
Section 234C — Interest for Deferment of Advance Tax
Section 234C applies when advance tax paid in any instalment is less than the required percentage for that instalment. The interest is calculated at 1% per month (or part of a month) on the shortfall amount. The interest applies for each instalment where the required percentage was not met.
| Instalment | Required % (Cumulative) | Shortfall Calculation |
|---|---|---|
| First (15 June) | 15% | Amount paid less than 15% of estimated tax |
| Second (15 September) | 45% | Cumulative amount paid less than 45% of estimated tax |
| Third (15 December) | 75% | Cumulative amount paid less than 75% of estimated tax |
| Fourth (15 March) | 100% | Cumulative amount paid less than 100% of estimated tax |
Example: If your estimated total tax is ₹1,20,000 and you pay ₹10,000 by 15 June, ₹20,000 by 15 September (cumulative ₹30,000), and ₹30,000 by 15 December (cumulative ₹60,000), then:
- By 15 June: Required ₹18,000 (15%), paid ₹10,000 — shortfall ₹8,000 attracts interest for 9 months (June to March)
- By 15 September: Required ₹54,000 (45%), paid ₹30,000 — shortfall ₹24,000 attracts interest for 6 months (September to March)
- By 15 December: Required ₹90,000 (75%), paid ₹60,000 — shortfall ₹30,000 attracts interest for 3 months (December to March)
As you can see, the interest can accumulate quickly across multiple instalments. The best practice is to pay at least the required percentage in each instalment to avoid Section 234C interest entirely.
How to Pay Advance Tax Online
Advance tax can be paid online through the Income Tax Department's e-payment facility. The process involves:
- Visit the Income Tax e-payment portal at onlineservices.tin.egov-nsdl.com or the new Income Tax portal at incometax.gov.in.
- Select Challan 280 (Income Tax) for individuals and Challan 281 for companies and partnership firms.
- Enter the PAN, assessment year (AY 2026-27 for FY 2025-26), type of payment (Advance Tax — 100), and other required details.
- Make the payment through net banking or debit card. You will receive a challan receipt with a BSR code and challan identification number (CIN). Retain this receipt — it is required while filing the income tax return.
- The advance tax payment will be reflected in your Form 26AS and Annual Information Statement (AIS) within a few days.
Practical Tips for Businesses in Ghaziabad and NCR
Businesses in Ghaziabad, Noida, Delhi, and across the NCR region should consider the following when computing advance tax:
1. Review Income Quarterly
Do not compute advance tax once and forget about it. Review your income projections at each instalment date. If your income is higher than expected, increase the subsequent instalments accordingly. If it is lower, you can reduce the next instalment but cannot claim a refund for overpayment until you file the return.
2. Factor in Capital Gains
If you expect to sell property, shares, or mutual funds during the year, include the estimated capital gains in the instalment following the quarter of expected sale. For example, if you plan to sell a property in October 2025, include the estimated capital gain in the second instalment (due 15 September) or at the latest in the third instalment (due 15 December).
3. Account for TDS on Salary
If you are an employer, you must ensure that TDS on salary is deducted at the correct rate and deposited with the government by the 7th of the following month. TDS on salary is not considered advance tax — it is a separate withholding obligation. However, the employee's advance tax liability is reduced by the TDS deducted on salary.
4. Consider the New Tax Regime
From FY 2023-24 onwards, the new tax regime under Section 115BAC is the default regime for individuals. If you have not specifically opted out of the new regime, your income will be taxed under the new regime. Ensure your advance tax computation reflects the correct tax regime and applicable slabs.
5. Estimate Conservatively
It is generally better to overestimate and pay slightly more advance tax than to underestimate and face interest penalties. Any excess amount paid as advance tax will be refunded when you file your income tax return (with interest under Section 244A if the refund is due to excess TDS or advance tax).
6. Track Challan Details
Keep a record of all advance tax payment challans, including the BSR code, CIN, date of payment, and amount. These details are required when filing the income tax return. You can also verify payments through your Form 26AS on the Income Tax portal.
Advance Tax Payment for Companies
Companies are required to pay advance tax in four instalments following the same schedule as other taxpayers. However, there are some additional considerations for companies:
- Minimum Alternative Tax (MAT): Companies liable to pay MAT under Section 115JA must also pay advance tax on MAT liability.
- Dividend Distribution Tax: Although the Dividend Distribution Tax (DDT) has been abolished, companies must ensure that dividend income is considered in the shareholder's advance tax computation.
- Quarterly board meetings: Companies typically review financial performance at quarterly board meetings. Use these meetings to reassess advance tax projections and adjust subsequent instalments.
Summary
| Key Point | Details |
|---|---|
| Threshold for advance tax | Tax liability exceeding ₹10,000 after TDS/TCS |
| First instalment | 15% by 15 June 2025 |
| Second instalment | 45% (cumulative) by 15 September 2025 |
| Third instalment | 75% (cumulative) by 15 December 2025 |
| Fourth instalment | 100% by 15 March 2026 |
| Presumptive taxation (44AD/44ADA) | 100% by 15 March 2026 |
| Interest under Section 234B | 1% per month on shortfall if less than 90% of assessed tax paid |
| Interest under Section 234C | 1% per month on shortfall in each instalment |
| Payment mode | Online through Income Tax e-payment portal (Challan 280/281) |
Advance tax compliance is an important part of income tax management. By projecting income, paying in the correct instalments, and reviewing projections quarterly, businesses and individuals can avoid interest penalties and maintain clean tax records.
For assistance with advance tax computation, tax planning, or income tax return filing for FY 2025-26 in Ghaziabad or across the NCR, you can reach out at +91 8802586988 or visit caashishrajput.com.
