Advance Income Tax Explained: Due Dates, Who Pays and How It Works

Advance Income Tax 2026-27: Key Details

What Is Advance Income Tax?

Advance Tax is the income tax that a taxpayer deposits with the government during the same financial year in which the income is earned. The Income Tax Department also refers to it as the Pay-As-You-Earn system.

Under this system, taxpayers estimate their income for the year, calculate the expected tax liability and pay the applicable amount in instalments. They do not have to wait until the end of the tax year to deposit the entire tax.

For example, suppose a freelancer expects to earn income throughout Tax Year 2026-27. If the estimated tax payable after considering eligible deductions, rebates and tax already deducted at source reaches ₹10,000 or more, the freelancer may have to pay Advance Tax during the year.

The main purpose of this system is to distribute tax payments throughout the year rather than collecting the entire amount after the year ends.

Who Needs to Pay Advance Tax?

Under Section 404 of the Income-tax Act, 2025, a taxpayer must pay Advance Tax when the amount of tax payable during the year, calculated under the applicable provisions, is ₹10,000 or more.

The requirement is not limited to business owners or self-employed professionals. It can also apply to individuals who earn income from salary, interest, rent, capital gains or other taxable sources.

The following taxpayers may need to pay Advance Tax if their remaining tax liability meets the prescribed threshold:

1. Salaried Employees

Employers generally deduct Tax Deducted at Source (TDS) from salary. However, some employees also earn income from sources such as fixed deposits, rent, capital gains, dividends or freelance work.

If the TDS deducted by the employer does not cover the employee's total tax liability and the remaining amount payable is ₹10,000 or more, the employee may have to deposit Advance Tax.

For instance, an employee may receive salary after TDS but also earn substantial interest from bank deposits. The tax on this additional income can increase the overall tax liability. If the remaining amount reaches the prescribed threshold, Advance Tax provisions may apply.

2. Business Owners

Individuals running shops, trading businesses, manufacturing units or other commercial activities may have to pay Advance Tax on their estimated taxable income.

They should consider their expected business profits and other taxable income while estimating the year's tax liability.

3. Freelancers and Independent Professionals

Freelancers, consultants, designers, developers, accountants, lawyers and other independent professionals may receive payments without sufficient TDS deduction.

They should estimate their taxable income for the year and check whether they need to deposit Advance Tax.

4. Individuals Earning Rental Income

People who receive rent from residential or commercial properties may have an additional tax liability. If the tax deducted or collected from other income does not cover their total liability, they may need to pay Advance Tax.

5. Taxpayers Earning Interest or Investment Income

Interest from fixed deposits, savings accounts, bonds and other taxable investments can increase a taxpayer's total income. Similarly, taxable capital gains and dividend income may create an additional tax liability.

Taxpayers should include such income while estimating their tax for the year instead of relying only on the TDS shown in their bank statements.

Who Is Exempt from Paying Advance Tax?

The Income-tax Act, 2025 provides a specific exemption for certain resident senior citizens.

Under Section 403(3), an individual is not required to pay Advance Tax if all the following conditions are fulfilled:

• The individual is a resident of India.
• The individual is 60 years of age or older at any time during the relevant Tax Year.
• The individual does not have income chargeable under the head Profits and Gains of Business or Profession.

This means a resident senior citizen who earns income only from sources such as pension, interest, rent or other non-business sources may qualify for the exemption, subject to the statutory conditions.

However, a senior citizen who earns taxable business or professional income does not qualify for this exemption merely because of their age.

Is There Any Exemption for Salaried Employees?

No blanket exemption applies to salaried employees. However, an employee may not need to pay additional Advance Tax if the employer has already deducted enough TDS to cover the estimated tax liability.

If the remaining tax payable after considering TDS and other eligible tax credits is below ₹10,000, the threshold under Section 404 is not met.

Advance Tax Due Dates for Tax Year 2026-27

Section 408 of the Income-tax Act, 2025 specifies four instalments for taxpayers who follow the regular Advance Tax payment schedule.

The payment percentages are cumulative. This means each instalment should bring the total Advance Tax paid up to the prescribed percentage of the year's estimated Advance Tax liability.

These percentages represent the cumulative amount payable, not the percentage of the total liability that must be deposited separately in every instalment.

For example, if the estimated Advance Tax liability is ₹1,00,000, the taxpayer should have deposited at least ₹15,000 by 15 June, ₹45,000 in total by 15 September, ₹75,000 in total by 15 December and the full ₹1,00,000 by 15 March.

Special Due Date for Certain Presumptive Taxpayers

Section 408(2) provides a different payment schedule for taxpayers declaring profits and gains under the specific presumptive taxation provisions mentioned in Section 58(2), Table entries 1 or 3.

These taxpayers must pay their entire Advance Tax liability in one instalment on or before 15 March 2027.

This special provision should not be treated as a general rule for every taxpayer who uses a presumptive taxation scheme. The applicable category must match the specific provisions referred to in Section 408(2).

How to Calculate Advance Tax for Tax Year 2026-27

Advance Tax is calculated on the estimated taxable income for the relevant Tax Year. You should consider all expected taxable income, apply the relevant deductions and tax rates, and then reduce the tax already expected to be deducted or collected at source.

Section 405 of the Income-tax Act, 2025 provides the computation framework:

Advance Tax Payable = Income Tax on Estimated Taxable Income − Eligible TDS/TCS

The final amount must be calculated after considering the applicable provisions, including eligible rebates, reliefs and tax credits wherever relevant.

Step 1: Estimate Your Total Income

First, calculate the income you expect to earn during Tax Year 2026-27. Include all relevant taxable income sources, such as:

• Salary or pension income.
• Business or professional income.
• Rental income from house property.
• Interest from savings accounts and fixed deposits.
• Dividend income.
• Capital gains from the sale of shares, mutual funds or property.
• Other taxable income.

Do not calculate your tax only on your salary or business income if you also earn money from other taxable sources.

Step 2: Calculate Your Taxable Income

After estimating your income, calculate your taxable income according to the applicable provisions of the Income-tax Act, 2025.

Consider eligible deductions, exemptions and other adjustments available under the tax regime you have selected. Different income categories may have different tax treatment, so do not apply a single tax rate to all income without checking the relevant rules.

Step 3: Calculate the Income Tax

Apply the income tax rates applicable for Tax Year 2026-27 to your estimated taxable income. Also consider the applicable surcharge, health and education cess, rebate and relief provisions.

The tax calculation should reflect your actual tax position under the applicable tax regime.

Step 4: Reduce TDS and TCS

Next, reduce the amount of tax expected to be deducted or collected at source from your income.

This may include TDS deducted by your employer, bank, tenant or other deductors, as well as eligible Tax Collected at Source (TCS).

For example, if your estimated tax liability is ₹80,000 and eligible TDS/TCS is expected to be ₹30,000, your remaining Advance Tax liability would be ₹50,000.

Step 5: Check Whether Advance Tax Is Payable

Compare the remaining tax payable with the ₹10,000 threshold under Section 404.

• If the remaining tax payable is ₹10,000 or more, Advance Tax provisions may apply.
• If the remaining tax payable is below ₹10,000, the threshold for compulsory Advance Tax payment is not met.

Eligible resident senior citizens without business or professional income should separately check the exemption under Section 403(3).

Advance Tax Calculation Example for 2026-27

Suppose a taxpayer estimates the following figures for Tax Year 2026-27:

Since the remaining tax liability is ₹50,000, which is above the ₹10,000 threshold, the taxpayer needs to follow the applicable Advance Tax schedule, assuming no statutory exemption applies.

The instalment calculation would be as follows:

*The instalment amounts above assume that the taxpayer pays exactly the required cumulative amount on each deadline and that the estimated liability and TDS/TCS remain unchanged.

If the taxpayer has already paid more than the required amount in an earlier instalment, the amount payable in the next instalment will be lower. Similarly, if the estimated income or tax liability changes during the year, the taxpayer can revise the remaining instalments accordingly.

Can You Revise Your Advance Tax Amount During the Year?

Yes. Your income estimate may change during the year. You may receive a new project, earn additional interest, sell an asset, receive a bonus or experience a reduction in business income.

Section 406(2) of the Income-tax Act, 2025 allows taxpayers to increase or reduce the Advance Tax payable in the remaining instalments according to their revised estimate of current income.

For example, suppose your initial estimate showed an Advance Tax liability of ₹60,000. After the second instalment, you receive additional income and revise the expected liability to ₹90,000.

You can adjust the remaining instalments to account for the revised liability. You should not continue using the old estimate if your expected income has changed significantly.

How to Pay Advance Tax Online?

The Income Tax Department provides an e-Pay Tax facility through its official e-Filing portal. Taxpayers can use this facility to generate a challan and deposit Advance Tax.

You can generally complete the payment with or without logging in to your e-Filing account, subject to the portal's verification requirements.

Follow these general steps:

1. Visit the Income Tax e-Filing portal.
2. Open the e-Pay Tax service.
3. Enter your PAN and complete the required verification if using the pre-login option.
4. Select the applicable Income-tax Act.
5. Choose the Income Tax or Corporation Tax payment category, as applicable.
6. Select Advance Tax as the type of payment.
7. Enter the required tax amount and verify the challan details.
8. Choose an available payment method.
9. Complete the transaction through your selected bank or payment gateway.
10. Download and save the payment receipt.

For a complete walkthrough with screenshots and detailed instructions, read our separate guide: How to Submit Advance Tax Online.

What Happens If You Do Not Pay Advance Tax on Time?

Failing to pay the required Advance Tax or depositing less than the prescribed amount may result in interest liability. The Income-tax Act, 2025 contains separate provisions for default in Advance Tax payment and deferment of instalments.

Interest Under Section 424 - Default in Payment of Advance Tax

Section 424 deals with interest for default in payment of Advance Tax. It applies in the situations specified under the section, including cases where the Advance Tax paid is below the prescribed proportion of the assessed tax.

The applicable interest is generally calculated at 1% per month or part of a month for the relevant period, subject to the statutory conditions and computation rules.

Interest Under Section 425 - Deferment of Advance Tax Instalments

Section 425 deals with interest for deferment of Advance Tax instalments. It applies when a taxpayer fails to pay the required cumulative amount by the prescribed instalment dates.

The interest rate is generally 1% per month or part of a month for the specified shortfalls. A higher rate of 3% applies to the specified shortfall relating to the first instalment under the statutory conditions.

Both provisions have specific calculation rules and exceptions. The exact interest depends on the amount paid, the instalment missed, the date of payment and the taxpayer's circumstances.

Important: Sections 424 and 425 of the Income-tax Act, 2025 govern relevant defaults for Tax Year 2026-27. For earlier tax periods, the corresponding provisions of the Income-tax Act, 1961 may apply.

What Is the Difference Between Advance Tax and Self-Assessment Tax?

Advance Tax and Self-Assessment Tax are both payments made towards income tax, but they apply at different stages.

For example, if you pay Advance Tax during the year but find an additional tax liability while preparing your return, you may need to deposit the balance as Self-Assessment Tax before submitting the return.

What Is the Difference Between Advance Tax and TDS?

Advance Tax and Tax Deducted at Source (TDS) are two different methods of collecting income tax before the final return is filed.

TDS already deducted or expected to be deducted should be considered while calculating Advance Tax. This helps prevent taxpayers from depositing tax twice on the same income.

Important Points to Remember About Advance Tax

• Advance Tax is based on estimated taxable income for the relevant tax year.
• The compulsory payment threshold under Section 404 is ₹10,000 or more.
• Eligible resident senior citizens without business or professional income receive an exemption under Section 403(3).
• Salary earners may also need to pay Advance Tax if their TDS does not cover the remaining tax liability.
• Advance Tax instalment percentages are cumulative.
• Taxpayers can revise the remaining instalments when their income estimate changes.
• Eligible TDS and TCS should be reduced while calculating the Advance Tax payable.
• Presumptive taxation cases covered by Section 408(2) follow a special single-instalment schedule.
• Missing an instalment may lead to interest under Sections 424 and 425.
• Keep every Advance Tax challan and payment receipt for your records.

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