Advance tax is the system by which the Income Tax Department collects tax from taxpayers as income is earned, rather than waiting until after the year ends. If your estimated tax liability for a financial year exceeds Rs 10,000, you are required to pay advance tax in quarterly instalments.
Who must pay advance tax
- Salaried employees whose employer deducts TDS on salary usually meet their liability through TDS. But if you have significant income from other sources, such as freelancing, capital gains, rental income or interest, and the net tax due after TDS exceeds Rs 10,000, you are liable.
- Self-employed professionals and business owners are almost always liable because no employer deducts TDS for them.
- Senior citizens (60+) with no business or professional income are exempt from advance tax.
Due dates and payment schedule
| Instalment | Due date | Cumulative % of estimated annual tax |
|---|---|---|
| First | 15 June | 15% |
| Second | 15 September | 45% |
| Third | 15 December | 75% |
| Fourth | 15 March | 100% |
If your income is mainly from capital gains or unexpected windfalls, you can pay the entire tax in the instalment immediately following the event, rather than spreading it across all four.
How to calculate and pay
- Estimate your total income for the year: salary, business, capital gains, interest, rental.
- Compute tax using the applicable slab rates under the regime you have chosen.
- Subtract TDS already deducted by employers, banks and others.
- If the balance exceeds Rs 10,000, pay advance tax via Challan 280 on the Income Tax Department's e-filing portal.
Our Income Tax calculator helps you estimate the liability.
Interest penalties for non-payment
- Section 234B: if you pay less than 90% of the assessed tax as advance tax by 31 March, simple interest at 1% per month is charged on the shortfall from April until the date of assessment.
- Section 234C: if you miss or short-pay any of the four quarterly instalments, interest at 1% per month is charged on the deficit for three months per instalment.
These interest charges are not penalties that can be waived on appeal. They are computed mechanically and added to your tax demand.
Common mistakes
- Ignoring capital gains mid-year. A large stock sale in October can trigger an advance tax obligation by 15 December that many people miss.
- Relying entirely on TDS. If your interest income, freelance receipts or rental income are substantial, TDS alone may not cover your total liability.
- Paying the wrong assessment year. Advance tax for FY 2024-25 should be tagged AY 2025-26 on the challan. A mismatch creates reconciliation problems.
Track your advance tax payments against Form 26AS to ensure every challan has been credited before you file your ITR.