Advance Tax
Advance Tax is income tax paid in installments during the financial year (rather than as a lump sum after year-end) by taxpayers whose tax liability exceeds ₹10,000 in a financial year. Mandatory for individuals with significant non-salary income.
Understanding Advance Tax
Advance Tax shifts tax-collection from year-end to spread across the year, smoothing government cash flow. For salaried earners, employer-deducted TDS usually covers the full liability; advance tax becomes relevant only when significant additional income (capital gains, freelance, rental) is earned.
The four installment percentages (15%, 45%, 75%, 100% cumulative) require taxpayers to estimate their full-year liability by 15 June and pay 15% upfront. Underpayment attracts interest under Sections 234B (for shortfall in advance tax) and 234C (for default in installment dates).
Why it matters
For taxpayers with capital gains or freelance income, planning advance tax is essential. Paying late attracts 1% per month interest under Section 234B/C. Use the income tax portal's online challan to make advance tax payments — quick, with instant Form 26AS credit. Retirees with FD interest income often must pay advance tax even if they expect refunds — the threshold is ₹10,000 of tax liability, not ₹10,000 of income.
Example
A freelance consultant earns ₹15 lakh in FY 2026-27 (no salary, no TDS). Estimated tax liability: ₹2.5 lakh. They must pay: ₹37,500 by 15 June, additional ₹75,000 by 15 September (cumulative ₹1.12 lakh), additional ₹75,000 by 15 December (cumulative ₹1.87 lakh), additional ₹62,500 by 15 March (cumulative ₹2.5 lakh).
A freelance consultant earns ₹15 lakh in FY 2026-27 (no salary, no TDS). Estimated tax liability: ₹2.5 lakh. They must pay: ₹37,500 by 15 June, additional ₹75,000 by 15 September (cumulative ₹1.12 lakh), additional ₹75,000 by 15 December (cumulative ₹1.87 lakh), additional ₹62,500 by 15 March (cumulative ₹2.5 lakh).