Advance Tax 2025-26: Who Pays, Due Dates, How to Calculate & Avoid Interest

If your tax liability exceeds ₹10,000, you must pay advance tax in 4 instalments. Missing any instalment attracts interest under Section 234B and 234C. Here is everything you need to know.

What is Advance Tax?

Advance tax is income tax paid in advance during the financial year itself, rather than at the end. The principle is "pay as you earn." If your estimated tax liability for the year exceeds ₹10,000 (after TDS), you are required to pay advance tax in 4 instalments. This applies to salaried employees, business owners, freelancers, and investors with capital gains.

Who Needs to Pay Advance Tax?

Any individual with tax liability > ₹10,000 after TDS must pay advance tax. This includes: freelancers and self-employed professionals, business owners, salaried employees with significant other income (capital gains, interest, rental income, side income), senior citizens (60+) with business income. Exception: senior citizens (60+) with NO business income are exempt from advance tax.

Advance Tax Due Dates and Instalment Percentages

How to Calculate Advance Tax

Step 1: Estimate total income for the year (salary + business + capital gains + interest). Step 2: Apply deductions under 80C, 80D, etc. Step 3: Compute tax on net income using applicable slabs + cess. Step 4: Subtract TDS already deducted. Step 5: If result > ₹10,000, pay advance tax. Each instalment amount = (cumulative % × total estimated tax) − previous instalments paid.

Interest for Non-Payment of Advance Tax

Section 234B: if you pay less than 90% of total tax liability as advance tax, interest at 1% per month applies from April 1 to actual payment date. Section 234C: if you miss or underpay any instalment, 1% per month interest for each instalment period. Both can apply simultaneously. Example: tax liability ₹5 lakh, advance tax paid ₹3 lakh — 234B interest applies on ₹2 lakh shortfall.

How to Pay Advance Tax Online

1. Login to incometax.gov.in or visit tin.nsdl.com. 2. Select Challan 280 (Income Tax Other Than Companies for individuals). 3. Select "100 — Advance Tax" as payment type. 4. Enter PAN, Assessment Year, income details. 5. Pay via net banking, UPI, or debit card. 6. Save challan receipt for ITR filing — advance tax paid is credited against final liability.

Advance Tax for Capital Gains (Special Rules)

Capital gains (from selling shares, property, mutual funds) are unpredictable. If you earn capital gains after September 15, you can pay the entire advance tax on those gains in the March 15 instalment without attracting 234C interest for earlier quarters. Plan large asset sales before year-end to avoid surprise advance tax liability in March.