PROSPERR.IO

A complete guide to advance tax under the Income-Tax Act, 2025 covering liability, due dates, senior citizen exemption and interest under Sections 424 and 425.

With the first advance tax instalment for FY 2026–27 (Tax Year 2026–27) becoming due shortly, taxpayers should review their advance tax obligations under the Income-Tax Act, 2025. Advance tax is not merely a statutory compliance requirement; it is an important mechanism for managing tax payments throughout the year and avoiding interest costs arising from non-payment or deferment of tax.

The statutory framework governing advance tax is contained in Sections 403 to 410 of the Income-Tax Act, 2025, while Sections 424 and 425 prescribe the interest consequences for default and deferment. Understanding these provisions is essential for taxpayers seeking to avoid unnecessary interest liability and ensure smooth tax compliance.

This comprehensive guide explains who is liable to pay advance tax, the advance tax due dates for FY 2026–27, the applicable instalments, exemptions available under the law, and the consequences of non-compliance.

What is Advance Tax?

Advance tax refers to the payment of income tax during the financial year itself on income earned during that year, instead of paying the entire tax liability after the close of the year.

Under Section 403 of the Income-tax Act, 2025, advance tax is payable in respect of the taxpayer's current income, which means the total income expected to be chargeable to tax for the relevant tax year.

The system follows the "pay-as-you-earn" principle, requiring taxpayers to estimate their annual income and discharge tax liability periodically during the year.

Who Is Liable to Pay Advance Tax for FY 2026–27?

Under Section 404 of the Income-Tax Act, 2025, advance tax becomes payable where the amount of tax payable during the tax year is ₹10,000 or more. Accordingly, every taxpayer whose estimated tax liability for Tax Year 2026–27, after considering:

• tax deducted at source (TDS);
• tax collected at source (TCS);
• eligible reliefs; and
• available tax credits,

is ₹10,000 or more is required to pay advance tax.

Is There Any Exemption from Advance Tax?

Section 403(3) provides relief to certain resident senior citizens. The advance tax provisions do not apply to an individual who:

• is resident in India;
• has attained the age of sixty years or more at any time during the tax year; and
• does not have income chargeable under the head "Profits and Gains of Business or Profession."

Accordingly, resident senior citizens earning salary, pension, interest, rental income, capital gains or income from other sources (other than business or profession) are exempt from payment of advance tax. However, where such individuals have business or professional income, the exemption is not available.

How Is Advance Tax Paid?

Section 406 requires every person liable to pay advance tax to estimate current income and pay advance tax on his own accord.

Taxpayers should:

• Estimate total income for the tax year;
• Compute tax liability under the applicable tax regime;
• Reduce eligible TDS, TCS, reliefs and tax credits; and
• Pay advance tax in prescribed instalments.
  

Since income estimates may change during the year, taxpayers are permitted to revise their estimates and adjust subsequent instalments accordingly. However, short payment of instalments may attract interest under Section 425.

Advance Tax Due Dates for FY 2026–27

Advance Tax Instalments for Regular Taxpayers. Section 408(1) prescribes four instalments for payment of advance tax.

The above percentages are cumulative in nature. Therefore, by 15 September 2026, the aggregate advance tax paid should be at least 45% of the estimated annual tax liability.

Advance Tax Rules for Presumptive Taxation Cases

Taxpayers covered under the presumptive taxation provisions referred to in Section 58(2) are not required to pay advance tax in four instalments. Instead, they are required to pay the entire advance tax liability on or before 15 March 2027.

Can Advance Tax Be Paid up to 31 March?

Yes. Section 408(3) provides that any amount paid by way of advance tax on or before 31 March shall be treated as advance tax paid during the relevant financial year. However, payment by 31 March may not completely eliminate liability to interest under Sections 424 and 425.

What Happens If Advance Tax Is Not Paid?

The Income-Tax Act, 2025 contains two separate provisions dealing with interest consequences:

• Interest for default in payment of advance tax (Section 424); and
• Interest for deferment of advance tax instalments (Section 425).

In certain cases, both provisions may apply simultaneously.

Interest for Default in Payment of Advance Tax – Section 424

Interest under Section 424 becomes payable where the taxpayer:

• fails to pay advance tax despite being liable to do so; or
• pays advance tax amounting to less than 90% of the assessed tax.

The interest is charged at 1% per month or part thereof on the applicable shortfall.The period of levy generally commences from 1 April following the tax year and continues until the date of processing of the return under Section 270(1) or completion of regular assessment.

Interest for Deferment of Advance Tax Instalments – Section 425

Even if the entire advance tax liability is ultimately discharged, interest may still arise if the prescribed instalments are not paid by the respective due dates.

Limited Relief for Initial Instalments

Recognizing the practical challenges involved in estimating annual income accurately at an early stage, Section 425(2) grants limited relief. No interest is payable if the advance tax paid amounts to at least:

• 12% of the tax due on returned income by 15 June; and
• 36% of the tax due on returned income by 15 September.

This provision provides a modest tolerance margin for estimation errors during the initial part of the tax year.

Relief Available from Interest under Section 425

The law provides limited relief where the shortfall arises on account of:

• Capital gains;
• Income referred to in Section 2(49)(n), including winnings from lotteries and similar activities;
• Business or professional income arising for the first time; and
• Dividend income.

The relief is available only if the tax attributable to such income is paid in the remaining instalments or by 31 March.

Practical Steps Before the First Instalment Due Date

With the first instalment falling due on 15 June 2026, taxpayers should undertake the following exercise:

1. Estimate Annual Income

Identify all anticipated sources of income, including:

• Salary;
• business or professional income;
• Interest income;
• Rental income;
• Capital gains; and
• Dividend income.

2. Compute Estimated Tax Liability

Calculate tax payable under the applicable tax regime.

3. Consider Available Credits

Reduce the estimated tax liability by:

• TDS;
• TCS;
• Foreign tax reliefs; and
• Eligible tax credits.

4. Verify Whether Liability Exceeds ₹10,000

If the net tax payable is ₹10,000 or more, advance tax provisions become applicable.

5. Ensure Timely Payment

Pay at least 15% of the estimated advance tax liability by 15 June 2026.

6. Review Estimates Periodically

Income projections should be revisited throughout the year, particularly where there are significant changes in business performance, investment income or capital transactions.

Conclusion

The advance tax provisions under the Income-Tax Act, 2025 substantially continue the existing framework of collecting taxes during the course of the year. Taxpayers whose estimated tax liability exceeds ₹10,000 should carefully assess their advance tax obligations and comply with the instalment schedule prescribed under Section 408.

Failure to pay advance tax or deferment in payment of instalments may attract mandatory interest under Sections 424 and 425, increasing the overall tax outgo. Consequently, advance tax should not be viewed merely as a statutory requirement but as an important aspect of effective tax planning and cash-flow management.

With the first advance tax instalment for FY 2026–27 due on 15 June 2026, taxpayers should commence their tax computations well in advance to ensure timely compliance and avoid unnecessary interest costs.

Disclaimer: This article is intended for general informational purposes only and does not constitute legal, tax, or professional advice. Readers should consult their tax advisors or other qualified professionals before acting on the basis of the information contained herein. While due care has been taken in preparing this article, the author and publisher accept no responsibility for any errors, omissions, or consequences arising from reliance on its contents.