The deadline for paying the fourth and final instalment of advance tax for the financial year 2025–26 is around the corner, with taxpayers required to clear their outstanding liability by 15 March 2026.
Advance tax refers to an income tax system in India where taxpayers pay estimated tax in instalments during the financial year rather than a lump sum at the time of filing the income tax return.
Taxpayers are required to calculate the estimated total income at the start of the financial year, thereby providing an estimate of the tax liability. The advance tax payment is made through a certain percentage of the four instalments.
It is mandatory for individuals with a net tax liability of ₹10,000 or more in a financial year, after adjusting for tax deducted at source (TDS), tax collected at source (TCS), and tax credits.
Who must pay advance tax?
Advance tax must be paid by all individuals whose tax liability remains even after accounting for TDS and other credits. If the remaining amount is ₹10,000 or more, paying advance tax becomes mandatory.
Here’s a list of individuals and entities who are required to pay advance tax:
- Freelancers and consultants:An independent professional or consultant earning fees needs to estimate annual income and pay taxes quarterly.
- Individuals receiving rental income:An individual receiving rent must pay advance tax on this income.
- Capital gains:A taxpayer who sold stocks, property or mutual funds must pay tax on these gains in the quarter the sale occurred.
- Interest income:Individuals earning interest income from fixed deposits or other sources.
- Additional income not covered by TDS:Even salaried individuals may need to pay advance tax if they have additional income that is not fully covered by TDS, such as profits from the sale of stocks, cryptocurrency gains, and rental income.
However, it is important to note that senior Indian citizens, who are aged 60 years or above and do not have business or professional income, are not required to pay advance tax. This rule does not apply for non-resident Indians (NRIs).
What is the penalty for missing the due date?
In case an individual fails to pay advance tax by the prescribed deadline, interest may be charged under Sections 234B and 234C of the Income Tax Act.
Taxpayers who either miss the instalment or pay less than the required amount are liable to pay interest of 1% per month on the unpaid portion of the tax.
Additionally, if less than 90% of the total tax liability is paid by 15 March, interest under Section 234B may continue to apply on the remaining amount until the dues are fully cleared.
Advance tax FY25-26 schedule
The Income Tax Department has set four stages during the year, in which taxpayers can pay their estimated advance tax.
- 15 June: 15% of total tax liability
- 15 September: 45% of total tax liability
- 15 December: 75% of total tax liability
- 15 March: 100% of total tax liability
