The September 15 deadline for the second instalment of advance tax is approaching, and taxpayers with income from sources such as interest, rent, capital gains, dividends or freelance work need to reassess their estimated tax liability. By September 15, taxpayers are required to have paid 45 percent of their estimated annual tax liability cumulatively, after considering TDS and TCS. With income often changing during the year, accurately estimating the full-year liability becomes important to avoid a shortfall and possible interest.
“For the September installment, the requirement is to have paid forty-five percent of the total estimated tax for the year, calculated cumulatively from April. To work this out, start by estimating total income across all sources for the full financial year, compute the tax payable on that income, then subtract any TDS or TCS expected to be deducted during the year. Forty-five percent of this net figure is the cumulative amount that should be paid by September 15, minus whatever was already paid in the June installment,” an industry expert said.
What is Advance Tax?
Advance tax is a ‘pay-as-you-earn’ system of income tax under which taxpayers pay their estimated tax liability in instalments during the financial year, instead of paying the entire amount at the time of filing their ITR. The provisions relating to advance tax are covered under Sections 403 to 410 of the Income Tax Act, 2025.
Who should pay Advance Tax?
Any taxpayer, including salaried individuals, freelancers, professionals and businesses, whose estimated tax liability for a financial year, after accounting for TDS/TCS, is more than Rs 10,000, is required to pay advance tax.
How should taxpayers estimate their advance tax when they have multiple or changing income sources?
Estimating tax liability midway through the year can be tricky when income does not follow a predictable pattern. The first step is to determine which tax regime applies, as the new and old regimes have different slab rates and deduction rules, and this choice affects the overall tax calculation.
Interest income from savings accounts and fixed deposits is often underestimated because banks deduct TDS only above certain thresholds. However, the actual tax payable on such income could be higher depending on the individual’s tax slab. Checking the Annual Information Statement (AIS) before finalising the estimate can help identify such gaps.
Capital gains and dividend income pose a different challenge as they can be unpredictable and may arise suddenly during the year. Tax rules provide some relief in such cases. If capital gains or similar income arises after the June instalment but before September, the tax on that income can be included and paid along with the September instalment without attracting interest for not having anticipated it earlier.
Anyone experiencing a mid-year increase in income, such as taking on a new client, receiving a bonus or earning additional freelance income, should revise their full-year income estimate accordingly. Underestimating income is one of the common reasons taxpayers end up falling short of their advance tax liability at the September deadline.
What happens if a taxpayer pays less advance tax than required by September 15?
Falling short of the required advance tax payment by September 15 can attract interest under Section 234C of the Income Tax Act. This interest is charged at one percent per month for three months on the shortfall amount, calculated against the 45 percent target for the instalment.
“There is a built-in cushion that taxpayers should be aware of. If a taxpayer has paid at least 36 percent of the total estimated tax by September 15, no interest is charged under this section for that particular instalment, even though the actual target is 45 percent. If cumulative payments fall below this 36 percent threshold, one percent monthly interest applies to the shortfall against the 45 percent target,” Mishra said.
If advance tax payments remain insufficient throughout the year and the total tax paid by March 31 is less than 90 percent of the final assessed tax, a separate and more significant interest charge can apply under Section 234B. This interest is calculated from April of the following year until the tax is paid.
The most reliable way to avoid such interest is to revisit income estimates before each instalment date rather than assuming that last year’s income will remain unchanged, particularly for taxpayers with variable income streams.
How can taxpayers pay advance tax online?
The following step-by-step guide explains how to pay advance tax online:
- Step 1: Go to the Income Tax e-filing portal and log in using your PAN and password.
- Step 2: Go to ‘e-File’ and select ‘e-Pay Tax’.
- Step 3: Click on ‘New Payment’ on the top-right corner.
- Step 4: Select ‘Income Tax’ from the available payment options and click ‘Proceed’.
- Step 5: Select Tax Year 2026-27 and choose ‘Advance Tax’ under the minor head (code 100).
- Step 6: Enter the applicable tax components, including tax, surcharge, cess and interest.
- Step 7: Select your preferred payment mode and click ‘Pay Now’.
- Step 8: Agree to the terms and conditions and complete the payment using the selected payment mode.
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