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September 29, 2026
Advance Payment of Tax Under ITA 2025: Compliance Guide
Introduction
Advance Payment of Tax is a system where taxpayers pay their estimated income tax liability during the tax year instead of paying the entire tax amount after the year ends. It follows the principle of paying tax on current income as it is earned.
Under the Income-tax Act, 2025, the advance tax framework continues with revised section numbering and simplified drafting. The provisions related to advance tax are mainly covered under Sections 403 to 408 of the new Act. The Income Tax Department has clarified that there is no policy change in advance tax provisions; the changes mainly relate to restructuring and simplification of provisions.
Businesses, professionals, and individuals with applicable tax liability should estimate their income, adjust available tax credits, and pay advance tax according to the applicable provisions.
Quick Insights
- Advance Payment of Tax requires taxpayers to pay estimated tax liability during the tax year.
- Under Section 404 of the Income-tax Act, 2025, advance tax applies when the tax payable during the year is ₹10,000 or more.
- Taxpayers should consider TDS, TCS, and other eligible credits while calculating advance tax liability.
- The Income-tax Act, 2025 continues the existing advance tax framework with revised section numbering.
- Short payment or deferment of advance tax may result in interest liability under applicable provisions.
What is Advance Payment of Tax Under Income-tax Act, 2025?
Advance Payment of Tax refers to payment of tax on estimated current income during the financial year.
Instead of paying the complete tax liability after filing the income tax return, taxpayers estimate their current income and pay tax in installments during the year.
Under Section 403 of the Income-tax Act, 2025, advance tax is payable during the financial year in respect of the current income of the assessee. Section 404 provides that advance tax is applicable where the tax payable during the year is ₹10,000 or more.
Who is Required to Pay Advance Payment of Tax?
Advance Payment of Tax applies to taxpayers whose estimated tax liability meets the prescribed conditions.
Individuals
Individuals may be required to pay advance tax if they have taxable income from:
- Business or profession
- Capital gains
- Rental income
- Interest income
- Other taxable sources
Businesses
Advance tax compliance applies to:
- Companies
- LLPs
- Partnership firms
- Proprietorship businesses
Businesses should regularly estimate their profits and calculate their expected tax liability.
Professionals
Professionals such as:
- Doctors
- Lawyers
- Consultants
- Freelancers
May also be liable to pay advance tax depending on their estimated taxable income.
Senior Citizen Exemption
A resident individual who is 60 years or older and does not have income chargeable under the head “Profits and Gains of Business or Profession” is not required to pay advance tax under the applicable provisions.
When is Advance Payment of Tax Applicable?
A taxpayer is required to pay advance tax when the estimated tax payable during the year is ₹10,000 or more.
While calculating Advance Payment of Tax, taxpayers should consider:
- Estimated total income
- Applicable tax rates
- Surcharge, if applicable
- Health and Education Cess
- TDS credits
- TCS credits
- Other eligible tax credits
The objective is to calculate the remaining tax liability after adjusting available credits.
How to Calculate Advance Payment of Tax?
Step 1: Estimate Current Income
Taxpayers should estimate income from all taxable sources, including:
- Salary income
- Business income
- Professional income
- Capital gains
- Interest income
- Other taxable income
Step 2: Calculate Estimated Tax Liability
After estimating income, calculate tax based on applicable rates.
The calculation should include:
- Income tax
- Surcharge, wherever applicable
- Health and Education Cess
Step 3: Reduce Available Tax Credits
Taxpayers should reduce:
- TDS
- TCS
- Other eligible credits
The balance amount represents the advance tax liability.
Step 4: Pay Advance Tax Installments
Taxpayers must pay the required amount according to the installment mechanism provided under Section 408 of the Income-tax Act, 2025.
Advance Tax Installments Under Income-tax Act, 2025
Section 408 of the Income-tax Act, 2025 provides the installment mechanism and due dates for advance tax payment.
For regular taxpayers, advance tax is payable on a cumulative basis:
|
Due Date |
Cumulative Advance Tax Payable |
|
On or before 15 June |
15% of advance tax liability |
| On or before 15 September |
45% of advance tax liability |
|
On or before 15 December |
75% of advance tax liability |
| On or before 15 March |
100% of advance tax liability |
The percentages represent cumulative liability after reducing the amount already paid in earlier installments.
Advance Payment of Tax for Presumptive Taxation
Taxpayers covered under eligible presumptive taxation schemes have specific advance tax payment requirements.
Under Section 408(2) of the Income-tax Act, 2025, eligible presumptive taxpayers declaring profits under the applicable presumptive taxation provisions are required to pay the entire advance tax liability on or before 15 March of the relevant financial year.
Businesses and professionals should evaluate their eligibility before applying presumptive taxation provisions.
Interest on Default or Deferment of Advance Payment of Tax
Failure to pay adequate advance tax may result in interest liability.
Section 424: Default in Payment of Advance Tax
Section 424 deals with interest applicable where advance tax is not paid as required or where the advance tax paid is insufficient. The interest framework continues from the earlier provisions with updated section numbering.
Section 425: Deferment of Advance Tax Installments
Section 425 deals with interest arising due to deferment of advance tax installments. The applicable interest rates remain unchanged under the new Act.
How to Pay Advance Payment of Tax Online?
Taxpayers can pay Advance Payment of Tax through the Income Tax e-Filing portal.
Steps include:
- Visit the Income Tax e-Filing portal.
- Select the e-Pay Tax option.
- Choose the applicable tax payment category.
- Enter payment details.
- Complete payment through available banking options.
- Save the payment acknowledgement.
Advance Payment of Tax vs Self-Assessment Tax
|
Basis |
Advance Payment of Tax |
Self-Assessment Tax |
|
Payment timing |
During the tax year | After final tax calculation |
| Basis | Estimated current income |
Final tax liability |
|
Purpose |
Pay tax liability in advance |
Pay remaining tax before filing return |
Mistakes While Paying Advance Payment of Tax
Taxpayers should avoid:
- Ignoring income from multiple sources.
- Not considering capital gains while estimating liability.
- Failing to adjust TDS/TCS credits.
- Underestimating business profits.
- Missing applicable installments.
- Not reviewing tax liability during the year.
Regular review of income and tax position helps taxpayers avoid interest implications.
How Businesses Can Manage Advance Tax Compliance?
Businesses should regularly review:
- Revenue projections
- Profit estimates
- Tax deductions
- TDS/TCS credits
- Cash flow requirements
Professional guidance can help businesses estimate tax liability accurately and maintain compliance.
Businesses can explore Tax Consultancy Services for assistance with advance tax calculations, tax planning, and compliance review.
Transition from Income-tax Act, 1961 to Income-tax Act, 2025
The applicability of advance tax provisions depends on the tax year to which the income relates.
Income earned during periods governed by the Income-tax Act, 1961 continues to be governed by the provisions of the old Act as per transition rules. Income relating to tax years governed by the Income-tax Act, 2025 will be governed by the new provisions.
The Income Tax Department has clarified that advance tax provisions do not undergo policy changes under the new Act. The framework continues with simplified drafting and revised section numbering.
Conclusion
Advance Payment of Tax is an important compliance requirement that allows taxpayers to distribute their tax payments throughout the year.
The Income-tax Act, 2025 continues the advance tax framework with revised provisions and section numbering. Taxpayers should estimate income accurately, consider available credits, and pay advance tax according to the applicable instalment schedule to avoid interest implications.
Businesses and professionals should regularly review their tax position and maintain proper financial records to ensure timely and accurate tax compliance.
Suggested Reads:
Latest Income Tax Changes 2026: Taxpayers Complete Guide
Compliance Necessity for Businesses
Frequently Asked Questions
1. Can advance tax liability be revised during the tax year if estimated income changes?
Yes. Since Advance Payment of Tax is based on estimated current income, taxpayers can revise their estimate when actual income changes and adjust later installments accordingly, subject to the cumulative payment requirements under Section 408 of the Income-tax Act, 2025.
2. How should TDS and TCS be considered while computing Advance Payment of Tax?
TDS and TCS credits should be considered while determining the balance advance tax payable. Under the Income-tax Act, 2025, advance tax computation takes into account tax deductible or collectible at source, subject to the applicable conditions.
3. Does an unexpected capital gain require reassessment of advance tax liability?
Yes. If a capital gain or another unexpected source of taxable income arises during the tax year, the taxpayer should reassess estimated income and determine whether additional advance tax must be paid in the remaining installments.
4. When does interest under Section 424 apply for short payment of advance tax?
Section 424 may apply where advance tax is not paid adequately, including where the advance tax paid is less than the prescribed percentage of assessed tax. The applicable interest is calculated according to the conditions specified under the Act.
5. Can interest under Section 425 apply even if the full advance tax liability is eventually paid?
Yes. Section 425 deals with deferment of advance tax installments. Therefore, paying the entire tax liability later does not automatically remove interest arising from an earlier installment shortfall, subject to the conditions and exceptions under the Act.
6. Is a resident senior citizen liable for advance tax if they earn business income?
The senior citizen exemption applies only where the resident individual aged 60 years or more has no income chargeable under “Profits and Gains of Business or Profession.” If such income exists, the exemption may not be available, subject to the general advance tax liability conditions.
7. Is Advance Payment of Tax required when most tax liability is already covered through TDS?
It depends on the remaining tax payable after considering applicable TDS, TCS, and other eligible credits. Advance tax liability arises when the amount computed under the advance tax provisions meets the prescribed threshold.
8. How can Ebizfiling help when business income fluctuates during the tax year?
Ebizfiling can help businesses review estimated income, available tax credits, projected tax liability, and advance tax compliance. Businesses needing wider financial and compliance support can also explore Business Advisory Services.
9. Can Ebizfiling assist with advance tax shortfall and interest calculations?
Yes. Ebizfiling can assist taxpayers in reviewing advance tax already paid, estimated liability, applicable TDS/TCS credits, and possible interest implications under Sections 424 and 425 before further payment.
10. Does presumptive taxation remove the requirement to calculate advance tax?
No. Eligible taxpayers opting for presumptive taxation are still subject to advance tax requirements. Under the applicable provisions of the Income-tax Act, 2025, qualifying presumptive taxpayers may discharge their advance tax liability through the prescribed single-instalment mechanism.
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