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

Category: Income Tax

Published by: Atul Kapur & Associates

Many taxpayers are surprised by a demand notice from the Income Tax department asking for interest on advance tax not paid. Unlike salaried employees whose tax is deducted at source by their employer, self-employed professionals, business owners, freelancers, and investors are required to pay their estimated tax liability in advance — in instalments across the financial year.

Understanding advance tax is especially important in FY 2026-27 given the rising number of Indians earning income from multiple sources: salary plus freelance work, rental income, capital gains from mutual funds, and dividends.

Who Must Pay Advance Tax?

You are required to pay advance tax if your estimated tax liability for the year, after accounting for TDS, exceeds Rs. 10,000. This applies to:

•       Self-employed professionals: doctors, lawyers, consultants, architects, designers

•       Business owners and partners in firms

•       Freelancers and gig workers earning from Indian or foreign clients

•       Individuals with significant rental income, capital gains, or dividend income

•       Salaried employees with additional income sources beyond their employer salary

Senior citizens (aged 60 and above) who do not have any income from business or profession are exempt from advance tax.

Advance Tax Due Dates for FY 2026-27

•       On or before June 15, 2026: Pay at least 15% of estimated annual tax liability

•       On or before September 15, 2026: Pay at least 45% of estimated annual tax liability (cumulative)

•       On or before December 15, 2026: Pay at least 75% of estimated annual tax liability (cumulative)

•       On or before March 15, 2027: Pay 100% of estimated annual tax liability (cumulative)

Taxpayers under the Presumptive Taxation Scheme (Section 44AD or 44ADA) can pay their entire advance tax in one instalment by March 15, 2027.

How to Calculate Your Advance Tax

Step 1: Estimate your total income for the year — salary, business income, rent, interest, capital gains, and any other sources.

Step 2: Deduct eligible deductions under Chapter VIA (80C, 80D, 80E, etc.) to arrive at your taxable income.

Step 3: Compute the tax on your taxable income as per the applicable slab rates (old or new regime as chosen by you).

Step 4: Subtract any TDS already deducted or expected to be deducted during the year.

Step 5: If the net figure exceeds Rs. 10,000, you must pay advance tax as per the instalment schedule above.

Interest for Default: Sections 234B and 234C

•       Section 234C: Interest at 1% per month for 3 months is charged if you miss or underpay any instalment by more than 10% of the required cumulative amount.

•       Section 234B: If you have paid less than 90% of the assessed tax by March 31, interest at 1% per month is charged from April 1 until the date of actual payment.

These interest charges are not waived even if you are getting a refund. The interest is calculated on the shortfall amount and can be significant for high-income earners.

How to Pay Advance Tax

Advance tax is paid online through the Income Tax e-filing portal (incometax.gov.in) using Challan 280. Select Assessment Year 2027-28, choose the appropriate tax type (Advance Tax — Code 100), and make payment through net banking or debit card. Always save the acknowledgement with the BSR code and challan serial number.

Need help estimating and planning your advance tax for FY 2026-27? Contact Atul Kapur & Associates at office@akaca.org or call 011-4134-5501. We serve individuals, HUFs, professionals, and businesses across India.