Advance Tax in India 2026: Who Needs to Pay, When, and How to Calculate
Most salaried employees never think about advance tax — their employer deducts TDS automatically, so the obligation is covered. But the moment you earn income outside your salary (freelance, capital gains, rental income, business income), the advance tax clock starts ticking. Miss the instalments and you pay simple interest at 1% per month — a quiet penalty that catches thousands of taxpayers off-guard every March.
Who Must Pay Advance Tax?
Any individual whose total tax liability (after TDS credit) exceeds ₹10,000 in a financial year must pay advance tax. This includes:
- Salaried employees with additional income: rent, capital gains, freelance work, dividend income above ₹5,000
- Self-employed professionals: doctors, lawyers, CAs, consultants
- Business owners and partners
- Traders with F&O (Futures and Options) income
Exempt from advance tax: Senior citizens (60+) with no business income are fully exempt — they can pay all tax as self-assessment tax on or before July 31 (ITR deadline) without interest liability.
Advance Tax Due Dates for FY 2026-27
| Instalment | Due Date | % of Total Tax to Pay |
|---|---|---|
| 1st instalment | 15 June 2026 | At least 15% |
| 2nd instalment | 15 September 2026 | At least 45% (cumulative) |
| 3rd instalment | 15 December 2026 | At least 75% (cumulative) |
| 4th instalment | 15 March 2027 | 100% |
Taxpayers opting for presumptive taxation (44AD/44ADA) pay the full advance tax in one shot by 15 March — no quarterly instalments required.
How to Calculate Your Advance Tax
- Estimate your total income for the financial year — salary, rental, capital gains, freelance, dividends
- Calculate gross tax on total income at applicable slab rates
- Subtract TDS already deducted (employer TDS from salary, TDS on FD interest, TDS on rent, etc.)
- If remaining tax liability > ₹10,000, you must pay advance tax in the instalments above
Example: Priyanka earns ₹18 lakh from salary (employer TDS: ₹1.5 lakh), ₹3 lakh from freelance (no TDS), and ₹1.5 lakh capital gains (no TDS). Total tax on ₹22.5 lakh (old regime): approx. ₹4.5 lakh. After employer TDS credit of ₹1.5 lakh, net liability: ₹3 lakh. Must pay advance tax.
Interest Penalties for Missing Advance Tax
| Section | Situation | Interest Rate |
|---|---|---|
| Section 234B | Less than 90% of tax paid by March 31 | 1% per month on shortfall from April until payment |
| Section 234C | Instalment paid less than required % on due date | 1% per month on shortfall for 3 months per instalment |
On a ₹3 lakh tax liability unpaid till March 31, Section 234B interest for 4 months = ₹12,000. Not catastrophic — but unnecessary.
How to Pay Advance Tax
- Go to the Income Tax e-filing portal: incometax.gov.in
- Navigate to e-Pay Tax → New Payment
- Select Challan 280 → Income Tax (other than companies)
- Assessment Year: select AY 2027-28 (for FY 2026-27 advance tax)
- Type of payment: select "100 – Advance Tax"
- Pay via net banking, UPI, or debit card
- Save the challan number — you'll need it when filing ITR
FAQ
Do I need to pay advance tax on capital gains from mutual funds?
Yes, if total capital gains plus other income pushes your tax liability above ₹10,000. For equity capital gains realised after December 15, they can be included in the March 15 final instalment without 234C interest for the earlier instalments.
What if I overpay advance tax?
Overpaid advance tax is fully refunded when you file your ITR — with 6% simple interest if the refund exceeds 10% of the assessed tax. Overpayment is always safer than underpayment.
Is advance tax applicable for income from F&O trading?
Yes. F&O income is treated as business income. F&O traders must pay advance tax quarterly. TDS is not deducted on F&O income, so the full liability must be self-assessed and paid.
