Advance tax is income tax paid during the year in which income is earned instead of waiting until the return is filed. It matters particularly for professionals, business owners, investors, landlords and salaried taxpayers whose TDS does not fully cover the final tax liability. For income earned in financial year 2026-27, the Income Tax Department has clarified that advance-tax liability is governed by the Income-tax Act, 2025.
When does advance tax become relevant?
The practical starting point is to estimate total income for the year, calculate the tax on that income under the applicable regime and then reduce available tax credits such as TDS and TCS. If the resulting amount creates an advance-tax obligation, it should be discharged during the year rather than left entirely to self-assessment tax at return-filing time.
This is why advance tax can apply even to a salaried person. Salary TDS may cover tax on salary, but substantial interest, rent, capital gains or other income can leave an additional tax balance. The Income Tax Department's guidance explains the same principle in its return FAQs and tax-payment material.
What is the normal instalment schedule?
For taxpayers who are not covered by the special presumptive single-instalment rule, advance tax is cumulative. The notified framework follows four milestones: at least 15% by 15 June, at least 45% by 15 September, at least 75% by 15 December and the whole advance-tax amount by 15 March. The notified Income-tax Rules, 2026 reflect this instalment structure.
Cumulative percentages are important. A taxpayer does not separately pay 45% in September after paying 15% in June. By 15 September, total advance tax paid should reach the applicable cumulative level, so the second payment is the amount needed to bridge the gap.
A simple worked example
Assume a consultant estimates total advance-tax liability for the year at ₹2,00,000 after considering available tax credits and is not using the presumptive single-instalment rule. The cumulative targets would ordinarily be ₹30,000 by 15 June, ₹90,000 by 15 September, ₹1,50,000 by 15 December and ₹2,00,000 by 15 March. If ₹30,000 was already paid in June, the amount needed in September to reach the 45% cumulative target would be ₹60,000.
The estimate should not be frozen at the start of the year. If profits, capital gains, interest or other taxable income changes materially, recompute the annual liability and adjust later instalments.
What changes for presumptive taxpayers?
The Income Tax Department's current Tax Payments FAQ states that assessees paying tax on business income under the presumptive taxation scheme under section 58 of the Income-tax Act, 2025 must discharge the entire advance-tax liability in a single instalment on or before 15 March of the relevant financial year. The Department specifically notes that this treatment remains the same in substance as under the old Act.
Accordingly, a taxpayer should first establish whether the relevant presumptive scheme actually applies. The single-payment treatment should not be copied to a regular business or professional computation merely because estimating quarterly income is inconvenient.
How should advance tax be estimated in practice?
- Forecast income: prepare a realistic full-year estimate for salary, business or professional profit, interest, rent, capital gains and other taxable income.
- Apply the correct tax regime: use the rates and provisions applicable to the taxpayer for the relevant tax year.
- Reduce eligible tax credits: account for TDS, TCS and other permitted credits while avoiding double counting.
- Identify the payment pattern: determine whether the normal four-instalment schedule or the applicable presumptive single-instalment rule applies.
- Reforecast before each milestone: update the computation for actual results, new transactions and revised year-end expectations.
- Keep the challan trail: preserve payment records and reconcile them with the tax portal before filing the return.
What happens if advance tax is short or late?
The Income Tax Department states that the interest rates for advance-tax defaults remain unchanged under the new Act. Its current guidance identifies section 424, corresponding to old section 234B, for failure to pay sufficient advance tax, and section 425, corresponding to old section 234C, for deferment of instalments. The Department states that section 424 interest is 1% per month or part of a month for the specified period where the conditions apply, while section 425 applies the prescribed interest for instalment deferment.
The practical lesson is that paying the final tax at return-filing time does not necessarily neutralise the cost of having missed advance-tax requirements earlier. Interest can arise because the tax was not paid at the statutory stage at which it should have been paid.
Common mistakes to avoid
- Looking only at TDS: TDS deducted by clients or an employer may still be lower than the final tax liability.
- Ignoring one-off income: interest, rent, bonuses, capital gains or a strong business quarter can change the estimate significantly.
- Reading cumulative percentages as separate percentages: each normal instalment is a cumulative target.
- Using the presumptive 15 March rule without checking eligibility: the special payment pattern is linked to the applicable presumptive scheme.
- Failing to re-estimate: advance tax is based on expected liability, so later instalments should reflect better information as the year progresses.
Advance tax versus self-assessment tax
Advance tax is paid during the financial year as the income is earned. Self-assessment tax is the residual amount paid after computing the final return liability and reducing taxes already paid or credited. A self-assessment payment can settle the remaining principal tax, but it does not automatically erase interest consequences arising from an earlier advance-tax shortfall or deferment.
Key takeaway
Advance tax is best treated as a rolling tax forecast rather than four isolated payment dates. Under the Income-tax Act, 2025, the familiar cumulative 15%, 45%, 75% and 100% pattern continues for the normal instalment framework, while qualifying presumptive taxpayers discharge the full advance-tax liability by 15 March. Re-estimating income before each milestone and reconciling TDS/TCS and prior payments is the simplest way to reduce year-end surprises and avoid preventable interest.
