Advance Tax is often referred to as the “pay-as-you-earn” system of taxation. Instead of paying the entire tax liability at the time of filing the income tax return, eligible taxpayers are required to pay tax during the financial year itself in prescribed installments.
Under the Income-tax Act, 2025, the concept of Advance Tax continues to play an important role in ensuring timely collection of taxes and reducing the burden of a large year-end payment.
This guide explains who needs to pay Advance Tax, how it is calculated, applicable due dates, and the consequences of non-compliance.
What Is Advance Tax?
Advance Tax is the payment of income tax in installments during the financial year based on the taxpayer’s estimated income and tax liability.
Instead of waiting until the end of the year, taxpayers whose tax liability exceeds the prescribed threshold are generally required to estimate their income and pay tax periodically.
Advance Tax may apply to:
- Businesses
- Professionals
- Freelancers
- Consultants
- Investors
- Landlords earning rental income
- NRIs earning taxable income in India
- Salaried individuals with substantial income from sources other than salary
Who Is Required to Pay Advance Tax?
A taxpayer is generally required to pay Advance Tax if the estimated tax liability for the financial year exceeds ₹10,000 after considering available tax credits and tax deducted at source (TDS).
Advance Tax may be applicable to:
- Proprietorship businesses
- Partnership firms
- LLPs
- Companies
- Self-employed professionals
- Freelancers
- Individuals with capital gains
- Individuals earning rental income
- NRIs having taxable income in India
Who Is Not Required to Pay Advance Tax?
Advance Tax may not be applicable in certain situations, including:
Tax Liability Does Not Exceed ₹10,000
Where the estimated tax liability for the year does not exceed ₹10,000.
Certain Senior Citizens
Resident senior citizens who do not have income chargeable under the head “Profits and Gains of Business or Profession” are generally not required to pay Advance Tax.
Advance Tax Due Dates
Advance Tax is payable in installments during the financial year.
| Due Date | Minimum Cumulative Advance Tax Payable |
|---|---|
| On or before 15 June | 15% |
| On or before 15 September | 45% |
| On or before 15 December | 75% |
| On or before 15 March | 100% |
The percentages represent the cumulative amount of Tax payable in Advance that should have been paid by the respective due date.
How Is Advance Tax Calculated?
The calculation of Advance Tax generally involves the following steps:
Step 1: Estimate Total Income
Estimate income from all sources, including:
- Business income
- Professional income
- Salary income
- Rental income
- Interest income
- Capital gains
- Other taxable income
Step 2: Compute Tax Liability
Calculate the estimated tax liability based on the applicable tax regime and rates.
Step 3: Reduce Tax Credits
Reduce:
- TDS already deducted
- TCS available
- Other eligible tax credits
Step 4: Calculate Advance Tax Payable
The balance amount represents the Tax payable in Advance.
Example of Advance Tax Calculation
Suppose a consultant estimates the following:
- Estimated taxable income: ₹20,00,000
- Estimated tax liability: ₹3,00,000
- TDS already deducted: ₹50,000
Income Tax payable in Advance:
₹3,00,000 − ₹50,000 = ₹2,50,000
The taxpayer would generally pay:
- By 15 June: ₹37,500
- By 15 September: ₹1,12,500 cumulatively
- By 15 December: ₹1,87,500 cumulatively
- By 15 March: ₹2,50,000 cumulatively
Advance Tax for Businesses and Professionals
Businesses and professionals often need to estimate profits during the year and revise estimates as new information becomes available.
Advance Tax calculations may need to be reviewed each quarter to ensure adequate tax payments and avoid interest liabilities.
Advance Tax for NRIs
NRIs may also be required to pay Advance Tax where they earn taxable income in India.
Common examples include:
- Rental income from Indian property
- Capital gains from sale of assets
- Interest income
- Business or professional income taxable in India
Where sufficient tax has not been deducted at source, Advanced Income Tax obligations may arise.
Can Advance Tax Estimates Be Revised?
Yes.
Advance Tax is based on estimated income and taxpayers can revise their calculations during the year.
If income increases or decreases, subsequent installments may be adjusted accordingly.
This flexibility allows taxpayers to align tax payments with actual income trends.
Advance Tax on Capital Gains
Many taxpayers assume Advance Tax only applies to business or professional income. However, capital gains may also result in an Tax liability.
Common examples include:
- Sale of shares
- Sale of mutual funds
- Sale of immovable property
- Sale of other capital assets
Since capital gains often arise unexpectedly during the year, taxpayers may not be able to estimate them at the beginning of the financial year.
In such cases, taxpayers are generally expected to pay Advance Tax in the remaining installments after the gain arises.
For example, if a property is sold in November, the resulting tax liability may be considered while computing the December and March Tax installments.
This makes it important to review Tax calculations whenever a significant capital gain is realised during the year.
Interest for Non-Payment or Short Payment of Advance Tax
Failure to pay Advance Tax or payment of insufficient Tax may result in interest liability under the provisions relating to Income Tax defaults.
Interest may arise where:
- Required installments are not paid on time
- Insufficient tax is paid during the year
- The total Tax paid falls below prescribed limits
Timely estimation and payment can help avoid such additional costs.
How to Pay Advance Tax?
Advance Income Tax can generally be paid online through the Income Tax Department’s e-Pay Tax facility.
Taxpayers should:
- Select the appropriate tax payment option
- Enter the required details
- Make payment through available banking channels
- Retain the payment acknowledgment for future reference
Common Mistakes While Paying Advance Income Tax
Some common mistakes include:
- Ignoring additional income sources
- Not considering capital gains
- Assuming TDS covers the entire tax liability
- Missing installment due dates
- Incorrect estimation of annual income
- Not revising tax calculations during the year
Regular review of income and tax liability can help prevent these issues.
Frequently Asked Questions (FAQs)
What is Advance Tax?
Advance Tax is the payment of income tax in installments during the financial year based on estimated income.
Who needs to pay Advance Tax?
Taxpayers whose estimated tax liability exceeds ₹10,000 are generally required to pay Advance Income Tax.
Do salaried employees need to pay Advance Income Tax?
Yes. Salaried employees may need to pay Advance Tax if they have additional income and their tax liability exceeds the prescribed threshold.
Can Advance Income Tax be revised during the year?
Yes. Taxpayers may revise their estimates and adjust future installments.
Do NRIs need to pay Advance Tax?
Yes. NRIs may be required to pay Advance Tax where they earn taxable income in India and sufficient tax has not been deducted at source.
What happens if Advance Tax is not paid?
Interest may apply for non-payment or short payment of Advance Tax under the applicable provisions of the Income-tax Act.
Need Help With Advance Tax Planning?
Estimating income and computing Advance Tax can be challenging, particularly for businesses, professionals, investors, and NRIs with multiple income sources.
A proper review of income projections, tax deductions, and available credits can help ensure compliance while avoiding unnecessary interest and penalties.