Advance tax is a pay-as-you-earn mechanism for income tax. Instead of waiting until the return is filed, a taxpayer estimates the year's tax liability, reduces eligible prepaid taxes such as TDS and TCS, and pays the remaining liability during the year when the statutory threshold is met. For Tax Year 2026-27, the Income Tax Department confirms in its tax-payment guidance that advance-tax liability is governed by the Income Tax Act, 2025.
Who needs to pay advance tax?
The practical starting point is the estimated net tax liability for the year. Taxpayers should estimate taxable income, compute tax, account for eligible tax credits and prepaid taxes, and determine the balance payable as advance tax. A resident senior citizen without income from business or profession has specific relief from advance-tax liability.
For salaried taxpayers, employer TDS may cover most of the liability, but additional income such as interest, rent, capital gains or freelance income can create a balance. The correct test is therefore not whether a person receives salary, but whether the remaining estimated tax liability after relevant credits requires advance-tax payment.
Advance-tax instalments for Tax Year 2026-27
The Department's current tax-payment FAQ confirms that the first instalment for Tax Year 2026-27 was due on 15 June 2026 under the Income Tax Act, 2025. Section 408 of the new Act retains the familiar cumulative instalment pattern for taxpayers other than specified presumptive-tax cases.
- 15 June: at least 15% of advance tax.
- 15 September: at least 45% cumulatively.
- 15 December: at least 75% cumulatively.
- 15 March: 100% cumulatively.
These percentages are cumulative targets, not four percentages to add together. If total advance tax is ₹1,00,000, the September target is ₹45,000 in total. If ₹15,000 was already paid in June, the amount needed by 15 September is ₹30,000, subject to any revised estimate.
How should advance tax be calculated?
The Income Tax Department's advance-tax guidance describes a practical sequence: estimate income for the year, compute tax on that income, account for applicable reliefs or credits, reduce prepaid taxes such as TDS and TCS, and determine the net advance-tax liability.
The estimate should be refreshed during the year. A taxpayer is not locked into the June estimate. If business profit, bonus, interest, rent, capital gains or other income changes materially, later instalments should be recalculated so that the cumulative statutory percentage is applied to the revised expected liability.
Worked example: professional with TDS
Assume a professional estimates total tax for the year at ₹2,40,000 and expects ₹80,000 of TDS. The estimated balance is ₹1,60,000. Under the regular instalment pattern, the cumulative targets would be ₹24,000 by 15 June, ₹72,000 by 15 September, ₹1,20,000 by 15 December and ₹1,60,000 by 15 March.
Now assume the professional wins a large assignment in October and revises the net advance-tax liability to ₹2,20,000. The December calculation should use the revised estimate rather than continuing mechanically with the original forecast. At 75%, the cumulative December target becomes ₹1,65,000; earlier advance tax paid is deducted to determine the additional amount required.
What about presumptive-tax taxpayers?
The Department's current guidance states that taxpayers covered by the specified presumptive-tax provision under the new Act can discharge the whole advance-tax liability in a single instalment on or before 15 March. This special timing rule should not be applied merely because a taxpayer is a small business or professional; the taxpayer must actually fall within the applicable presumptive-tax framework.
What happens if advance tax is short or late?
The Department's interest-and-fees guidance explains that interest applies for default or deferment of advance tax. Under the Income Tax Act, 2025, section 424 corresponds to old section 234B and section 425 corresponds to old section 234C. The Department states that the applicable interest rates remain unchanged under the new Act.
Practically, there are two separate risks: paying too little overall and failing to meet the required instalment pattern. A taxpayer who expects a large balance only at return-filing time should therefore review advance tax before each instalment date rather than assuming self-assessment tax later will have the same interest outcome.
Advance tax versus self-assessment tax
Advance tax is paid during the relevant year against estimated liability. Self-assessment tax is the balance paid after the final income and tax computation is prepared, before the return is furnished where tax remains payable. They are not interchangeable labels even though both ultimately reduce the tax payable.
A good year-end process reconciles tax liability with TDS, TCS, advance-tax challans and other eligible credits. If a balance remains, it is dealt with as self-assessment tax in the return process; interest consequences from earlier advance-tax shortfalls may still need to be computed.
Practical advance-tax checklist
- Build an annual income forecast: include salary, business or professional income, interest, rent, capital gains and other taxable income expected during the year.
- Estimate the tax: apply the relevant tax regime and rates for the year.
- Reduce eligible credits and prepaid taxes: factor in expected TDS, TCS and applicable reliefs or credits rather than paying advance tax on gross tax liability.
- Check the correct instalment framework: distinguish regular taxpayers from taxpayers validly using the applicable presumptive scheme.
- Reforecast before every due date: update income, deductions and TDS instead of repeating the original estimate.
- Track cumulative payments: compare total advance tax paid with the cumulative 15%, 45%, 75% and 100% targets.
- Preserve challans: reconcile payment details to the tax records before filing the return.
- Review interest exposure: where instalments were short or delayed, compute the applicable statutory interest.
Common mistakes to avoid
- Calculating advance tax on gross tax without reducing expected TDS or TCS.
- Treating the instalment percentages as independent payments instead of cumulative targets.
- Ignoring capital gains, interest or other non-salary income because salary TDS is already being deducted.
- Failing to revise the estimate after a material change in income.
- Using the single 15 March presumptive-tax timing rule without actually qualifying for the presumptive framework.
- Assuming that paying the entire balance as self-assessment tax eliminates advance-tax interest consequences.
Practical takeaway
Advance tax works best as a rolling forecast, not a once-a-year calculation. Estimate the net liability after TDS and other eligible credits, apply the correct instalment framework, and refresh the calculation before each due date. For Tax Year 2026-27, use the Income Tax Act, 2025 framework and the Department's current guidance rather than relying mechanically on old section numbers.
