What Is Advance Tax? The Basics Under New Income Tax Act 2025

Advance tax is exactly what the name suggests: paying your income tax in advance, during the financial year in which the income is earned, rather than waiting until the end of the year to pay it all in one shot. The Indian government introduced this mechanism to ensure a steady, predictable flow of revenue throughout the year — and to spread the tax burden for taxpayers rather than forcing a massive lump-sum payment at year-end.

For Tax Year 2026-27 (April 2026 to March 2027), advance tax is governed by Sections 403 to 410 of the Income Tax Act 2025, which replaced the corresponding provisions (Sections 207 to 219) of the repealed Income Tax Act 1961. The legal framework has changed in section numbering and consolidation, but the underlying mechanics — the threshold, the instalment percentages, and the interest provisions — remain broadly the same.

The guiding principle is simple: the Income Tax Department does not want to wait until you file your ITR in July 2027 to collect the tax on income you earn between April 2026 and March 2027. You are required to estimate your annual income, compute the tax, and pay it in four instalments across the year. This is also sometimes called the “pay-as-you-earn” system.

Who Must Pay Advance Tax — And Who Is Exempt

Under Section 404 of the Income Tax Act 2025, advance tax is mandatory for every taxpayer — individual, HUF, firm, LLP, or company — whose estimated income tax liability for Tax Year 2026-27, after deducting TDS and TCS already credited, is ₹10,000 or more. This threshold is carried forward unchanged from the old Act.

Who Must Pay Advance Tax

• Self-employed professionals — doctors, lawyers, architects, consultants, CAs, software developers working independently
• Business owners — proprietors, partners, directors with business income
• Freelancers and gig workers — whose income is received without TDS deduction or with insufficient TDS
• Salaried individuals with side income — rent, capital gains, interest from FDs, dividends, freelance assignments
• Investors — who earn capital gains from stocks, mutual funds, real estate, or crypto assets exceeding the threshold
• NRIs earning income in India — from rent, capital gains, interest, business income sourced in India
• Companies — all companies are required to pay advance tax regardless of the ₹10,000 threshold (they must pay in four instalments)

Who Is Exempt from Advance Tax

• Resident senior citizens aged 60 or above who do not have income from business or profession — they are fully exempt under Section 405. This is the single most important exemption and applies to retired individuals living on pension, interest, and rental income.
• Salaried employees whose entire tax liability is covered by TDS deducted by their employer — if TDS fully covers the tax on salary and the additional income (if any) results in a net liability of less than ₹10,000, no advance tax is payable.

Special Category — Presumptive Taxation

Taxpayers who opt for presumptive taxation under Section 58 of the Income Tax Act 2025 (corresponding to the old Sections 44AD, 44ADA, 44AE) are also required to pay advance tax. However, they pay their entire advance tax liability in a single instalment on or before 15 March 2027 — not in the four-instalment schedule applicable to regular taxpayers. This is a significant concession that reduces compliance burden for small businesses and professionals choosing the presumptive route.

Advance Tax Due Dates FY 2026-27 — Full Instalment Schedule

The advance tax instalment schedule for FY 2026-27 (Tax Year 2026-27) is set under Sections 407 and 408 of the Income Tax Act 2025. The percentages are cumulative — meaning you must have paid a total of 45% of your liability by 15 September, not an additional 45%.

If any advance tax due date falls on a bank holiday or a Sunday, you may pay on the next working day without any penalty. This applies to all four instalments.

You can make advance tax payments throughout the year — not just on the due dates. Any payment made before the due date counts toward that instalment. Many seasoned taxpayers pay in the first week of each quarter to avoid last-minute portal congestion.

How to Calculate Advance Tax FY 2026-27 — Step-by-Step

Calculating advance tax correctly requires estimating your total income for the year, applying the relevant deductions, computing tax at slab rates, adding surcharge and cess, and then subtracting TDS already deducted. The balance is your advance tax liability — which you then split into instalments as per the schedule.

Here is the complete calculation process:

1. Estimate Total Gross Income: Add income from all five heads — Salary, House Property, Capital Gains, Business/Profession, and Other Sources (interest, dividends, etc.) for the full Tax Year 2026-27. Be realistic but conservative — you can revise in subsequent instalments.
2. Subtract Eligible Deductions: Under the new Income Tax Act 2025, deductions under the new regime include standard deduction of ₹75,000 for salaried individuals, NPS employer contribution deduction, and interest on home loan for let-out property. The old regime deductions (80C, 80D, HRA, etc.) continue for those who opt to remain under the old regime.
3. Arrive at Taxable Income.
4. Apply Tax Slab Rates: For Tax Year 2026-27 under the New Regime (default), the slabs are as follows:

5. Add Surcharge (if applicable): Surcharge applies when total income exceeds ₹50 lakh. Rates — 10% for ₹50L–₹1Cr; 15% for ₹1Cr–₹2Cr; 25% for ₹2Cr–₹5Cr; 37% above ₹5Cr (old regime); 25% cap on surcharge under new regime.
6. Add 4% Health & Education Cess on (tax + surcharge).
7. Subtract TDS already deducted — by your employer, bank, tenant, or any other deductor. Check your Form 26AS or AIS for amounts already credited.
8. Subtract TCS collected from you on purchases, if any.
9. Balance = Advance Tax Payable. If this is ₹10,000 or more, you must pay advance tax in instalments as per the schedule.

How to Pay Advance Tax Online — Challan 280 Step-by-Step

Paying advance tax online through the Income Tax Department’s e-filing portal is the fastest and most reliable method. The entire process takes under five minutes once you are set up. Here is the complete step-by-step procedure for FY 2026-27:

1. Visit the Portal: Go to incometax.gov.in. You can pay with or without logging in. For without-login payment, click on Quick Links → e-Pay Tax.
2. Enter PAN: Enter your PAN number, re-confirm it, enter your registered mobile number, and click Continue. An OTP will be sent to your mobile for verification.
3. Select Tax Type: After OTP verification, click on the first box labelled Income Tax and click Proceed.
4. Select Tax Year and Payment Type: Choose Tax Year: 2026-27 and Type of Payment: Advance Tax (100). Click Continue.
5. Enter Tax Details: Fill in the amounts for tax, surcharge (if applicable), cess, and any interest. The portal also has a “total” field. Enter the total advance tax amount you want to pay for that instalment.
6. Choose Payment Mode: Select from Net Banking, Debit Card, UPI, NEFT/RTGS, or Over-the-Counter (bank branch). Net Banking is the most commonly used and instantaneous.
7. Review Challan and Pay: A preview of Challan 280 will appear. Verify PAN, Tax Year, Type of Payment, and amount before clicking Pay Now.
8. Save Receipt: After successful payment, a confirmation screen displays your BSR Code (a 7-digit bank branch code) and Challan Serial Number. Download and save this receipt. You will need both these numbers while filing your ITR.

After payment, the amount typically reflects in your Form 26AS within 3–5 working days and in your AIS (Annual Information Statement — Form 168 under the new Act) within a week. Always verify that the payment is correctly credited before filing your ITR.

Interest Under Sections 424 & 425 — What You Pay if You Miss

The Income Tax Act 2025 retains the same interest provisions for advance tax default as the old Act — but under new section numbers. Understanding these is critical because they are compulsory, non-waivable, and computed automatically by the system when you file your ITR.

Section 424 — Shortfall in Total Advance Tax Paid (Old Section 234B)

If the total advance tax you have paid by 31 March 2027 is less than 90% of the tax assessed in your ITR, interest under Section 424 is charged at 1% per month (or part of a month) on the shortfall from April 1, 2027 until the date of self-assessment tax payment.

Example: Your total tax liability is ₹1,80,000. You paid ₹1,50,000 as advance tax by March 31, 2027. The 90% threshold is ₹1,62,000. Since you paid only ₹1,50,000 (less than ₹1,62,000), interest applies on the shortfall of ₹30,000 from April 2027 until you pay.

Section 425 — Deferment of Instalments (Old Section 234C)

Interest under Section 425 is charged for shortfall in each individual instalment. The rates and conditions are:

Exception — Capital Gains and Lottery Income

There is an important exception under Section 425: no interest is charged for shortfall in any instalment if the income that caused the shortfall arose after the instalment due date. This is particularly relevant for capital gains — if you sold shares in February 2027 and the resulting tax liability was not covered in your Q3 instalment, no Section 425 interest applies for that specific shortfall, provided you pay the tax in the remaining instalments or as self-assessment tax.

Special Cases — Capital Gains, NRI, Presumptive Tax, Salary + Business

Capital Gains — When and How to Pay Advance Tax

Capital gains present a unique challenge for advance tax because gains are often unpredictable — you cannot know in April that you will sell shares in October and earn ₹5 lakh in LTCG. The law accommodates this reality. If a capital gain arises after the first, second, or third instalment due date, the entire tax on that gain can be paid in the remaining instalments without attracting Section 425 interest.

Practically, this means: if you sold property in September 2026 and realised a capital gain of ₹20 lakh, you need to compute the tax on that gain and add it to your remaining two instalments (December 2026 and March 2027). You should also check whether GST implications apply if the transaction involved a business asset.

Key rates for FY 2026-27 capital gains:

• LTCG on listed equities and equity MFs: 12.5% on gains above ₹1.25 lakh (Section 112A equivalent under new Act)
• LTCG on debt MFs, bonds, unlisted shares, real estate: 20% with indexation (old regime) or 12.5% without indexation
• STCG on listed equities: 15% (new Act provisions)
• STCG on other assets: taxed at slab rates applicable to the taxpayer

NRI — Advance Tax on India-Sourced Income

Non-Resident Indians earning taxable income in India — from rent, capital gains on Indian real estate or securities, interest from NRO accounts, or business income — are liable to pay advance tax on the same four-instalment schedule as resident taxpayers. The key difference is that many payments to NRIs attract higher TDS rates, which can reduce or eliminate the advance tax obligation. NRIs should review their AIS and check for TDS already deducted before computing their residual advance tax liability. External references: incometaxindia.gov.in.

Salary Plus Business Income — The Mixed Scenario

This is one of the most common situations in India today — a salaried professional who also earns from consulting, a small business, or a YouTube channel. The employer deducts TDS on salary. But the business income is entirely in your hands — no TDS is deducted. Here is how to handle it:

• Calculate total tax on the combined income (salary + business + any other)
• Subtract TDS deducted by employer (you can check this in your Form 16 issued for FY 2026-27)
• The balance is your advance tax liability
• Pay this balance in four instalments based on the standard percentages

Freelancers Under Section 44ADA (Presumptive)

If you are a doctor, lawyer, architect, engineer, or accountant earning from a profession and your gross receipts are under ₹75 lakh (the Section 44ADA threshold under the new Act), you can opt for presumptive taxation and pay 50% of gross receipts as income. Advance tax for such professionals is due in a single instalment of 100% by 15 March 2027 — not in four parts. This simplifies advance tax compliance significantly.

Case Studies — Real Calculation Examples

Case Study 1 — Freelance Graphic Designer, Mumbai

Profile: Priya, aged 34, earns ₹18 lakh annually from graphic design projects. Her TDS is not deducted by clients since she issues invoices below the per-client threshold in most cases. She has no salary income. She opts for the new regime.

Calculation:

• Gross income: ₹18,00,000
• Deductions (new regime): Nil (no 80C, no standard deduction for non-salaried)
• Taxable income: ₹18,00,000
• Tax (new regime): ₹1,40,000 + 30% on ₹3,00,000 = ₹1,40,000 + ₹90,000 = ₹2,30,000
• Cess (4%): ₹9,200
• Total tax: ₹2,39,200
• TDS deducted: ₹12,000
• Advance tax payable: ₹2,27,200

Instalment Schedule:

• 15 June 2026: 15% = ₹34,080
• 15 September 2026: 45% cumulative = ₹1,02,240 (pay ₹68,160 this quarter)
• 15 December 2026: 75% cumulative = ₹1,70,400 (pay ₹68,160 this quarter)
• 15 March 2027: 100% = ₹2,27,200 (pay ₹56,800 this quarter)

Case Study 2 — Business Owner + Rental Income, Delhi

Profile: Ramesh, aged 52, runs a trading business and earns ₹12 lakh net profit. He also earns ₹3.6 lakh annual rent from a commercial property. His tenant deducts 10% TDS = ₹36,000. He has no salary. Old regime, with 80C deductions of ₹1.5 lakh.

Calculation:

• Business income: ₹12,00,000
• Net house property income: ₹3,60,000 − 30% standard deduction = ₹2,52,000
• Gross income: ₹14,52,000
• Less 80C: ₹1,50,000
• Taxable income: ₹13,02,000
• Tax (old regime): ₹2,50,000 at nil + ₹2,50,000 at 5% + ₹5,00,000 at 20% + ₹3,02,000 at 30% = ₹0 + ₹12,500 + ₹1,00,000 + ₹90,600 = ₹2,03,100
• Cess: ₹8,124
• Total tax: ₹2,11,224
• TDS from tenant: ₹36,000
• Advance tax payable: ₹1,75,224

Case Study 3 — Salaried Employee with Capital Gains

Profile: Kavitha, aged 41, earns ₹22 lakh in salary. Her employer deducts ₹2,85,000 as TDS. She also sells mutual fund units in November 2026, earning ₹4 lakh in LTCG. First-time capital gain — she had not planned for advance tax.

What Kavitha Should Do: Since the LTCG arose in November 2026 (after the Q2 due date of 15 September), she is not liable for Section 425 interest on the Q1 and Q2 shortfall related to capital gains. She should pay the LTCG tax (₹4,00,000 − ₹1,25,000 exemption = ₹2,75,000 × 12.5% = ₹34,375 + cess) as advance tax in her Q3 instalment (15 December 2026). If she misses Q3, she should pay by 15 March 2027 and accept the Q3 Section 425 interest on that amount. Internal reference: ITR Filing FY 2025-26 Guide.

Advance Tax FY 2026-27 — Complete Reference Infographic

Conclusion — Act Before 15 June 2026

Advance tax is not an optional formality. For every freelancer, business owner, investor, and salaried professional with significant side income in India, it is a mandatory quarterly obligation under Sections 403 to 410 of the Income Tax Act 2025. The first instalment for FY 2026-27 is due on 15 June 2026 — and the clock is already running.

The good news is that getting advance tax right is straightforward once you understand the mechanics: estimate your income, compute the tax, subtract TDS, split the balance into four instalments, and pay via the Income Tax portal using Challan 280. The free calculator embedded in this post can do the heavy lifting for you in seconds.

If your income situation is complex — multiple income streams, capital gains, business income and salary both, NRI status, or partnership firm — it is worth spending 30 minutes with a CA to compute your advance tax precisely. The interest saved by getting it right far outweighs the advisory fee. For professional guidance on navigating the new Income Tax Act 2025, ITR filing for FY 2026-27, and advance tax planning, our team at ClearTax Advisors is here to help.