Advance tax, also called the “pay-as-you-earn” scheme, asks the taxpayer to pay income tax in installments during the financial year instead of at the end. For FY 2025–26, advance tax becomes payable if after considering all TDS and TCS, an individual or business has a net tax liability of more than ₹10,000. This ensures that all persons receiving income from multiple sources, such as salary where adequate TDS has not been deducted, freelancing, rent, interest, capital gain, or business profits, all pay taxes progressively during the year. 

Salaried people generally would not be required to pay advance tax if their employer has deducted sufficient TDS. However, if one receives additional income by way of rent, freelancing remuneration, or receipts of any investment, the person would become liable for advance tax. Senior citizens, aged 60 years or above, not having any business income, are fully exempt from paying advance tax even if their total tax liability is high. The Income Tax Department has fixed four installment dates: 15 June (15%), 15 September (45% cumulative), 15 December (75% cumulative), and 15 March (100%). A taxpayer can make final adjustments on or before 31 March if some amount still remains unpaid.

The estimate of advance tax is done in the following way: estimating all incomes for the year, computing tax on the estimated income using applicable slab rates, deducting TDS already credited, and checking if the balance exceeds ₹10,000. If yes, advance tax is payable to avoid penalties.

Failure to pay, or delay in the payment of, the advance tax attracts interest under Sections 234B and 234C, which thus substantially enhances the final tax liability. The government charges interest both for late payment and for short payment of installments on a monthly basis, and hence, timely compliance is of prime importance. The Income Tax Department closely monitors cases of mismatch between income declared and as per Form 26AS, AIS, and TDS, thereby increasing the chances of scrutiny in case advance tax is ignored.

Advance tax can be easily paid online through the e-Filing portal, under the option "e-Pay Tax" given therein, or through net banking channels provided by authorized banks. Payment of advance tax in time not only saves the government from levying interest and issuing notices but also ensures smooth ITR filing at the year-end without any unexpected demands or delays. Overall, understanding and adhering to the advance tax rule—particularly the ₹10,000 threshold—is of utmost significance for individuals, freelancers, investors, and businesses to manage their tax obligations efficiently and avoid penalties in FY 2025–26.

What Is Advance Tax?

Advance tax, often referred to as the “pay-as-you-earn tax,” is a system under which taxpayers are required to pay their income tax in several installments throughout the financial year instead of waiting to pay everything at once at the end of the year. This system ensures that taxes are collected by the government in real time as income is earned, which helps reduce the burden on taxpayers during the final filing period and prevents last-minute financial stress.

Advance tax applies to both individuals and businesses, including salaried employees, professionals, freelancers, investors, and companies. The key condition for advance tax liability is that your estimated net tax payable for the entire financial year must exceed ₹10,000. Here, “net tax” refers to the amount of tax owed after deducting all TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) already paid or withheld on your income. If, after accounting for TDS/TCS, the remaining tax liability is above ₹10,000, you are legally required to pay advance tax in quarterly installments.

This threshold ensures that only taxpayers with significant income outside the TDS system—such as business profits, rental income, capital gains, interest earnings, or freelance payments—come under advance tax rules. For example, if you earn a salary where your employer deducts full TDS but you also earn additional income like rental income or stock market profits that have little or no TDS deducted, your overall tax liability may cross the ₹10,000 limit, triggering advance tax requirements. By distributing the tax payment across the year, advance tax promotes disciplined tax compliance, reduces the risk of interest or penalties at the end of the year, and helps the government maintain a steady revenue inflow.

Who Must Pay Advance Tax?

You must pay advance tax in FY 2025–26 only if BOTH of the following conditions are met:

1.     Your total estimated tax liability for the year exceeds ₹10,000, after considering all eligible deductions and exemptions.

2.     TDS (Tax Deducted at Source) does not fully cover your tax liability, meaning there is still some tax payable after subtracting TDS/TCS.

Advance Tax Is Compulsory For:

• Salaried individuals with additional income such as rent, interest, dividends, freelancing income, capital gains, crypto earnings, or side business income.
• Freelancers and consultants, as most of their income does not have TDS deducted.
• Business owners, including small businesses, traders, and entrepreneurs.
• Professionals like doctors, CAs, architects, lawyers, engineers, designers, and other independent practitioners.
• Investors who earn capital gains from stocks, mutual funds, real estate, crypto, or other investments.
• Companies, LLPs, and partnership firms, regardless of the amount of income, if their tax liability exceeds the ₹10,000 threshold.

How to Calculate Advance Tax (Simple Method)

Calculating advance tax is a straightforward process once you know your estimated income for the financial year. The first step is to estimate your total taxable income by adding up all sources of earnings. This includes salary (especially if your employer’s TDS does not fully cover your tax), rental income, business or professional profits, capital gains from the sale of shares, property, or other assets, interest earned from bank FDs or savings accounts, dividend income, and profits from crypto or intraday stock trading.

After estimating your gross annual income, apply the applicable income-tax slab rates to compute your total tax liability. Once your tax is calculated, subtract all TDS or TCS amounts already deducted during the year. If the remaining tax payable after these deductions exceeds ₹10,000, you are required to pay advance tax in quarterly installments.

Example

Now, consider Rishi, who has multiple income sources in FY 2025–26. He has a salary income of ₹10,00,000, wherein his employer has already deducted ₹85,000 as TDS. In addition to that, he receives ₹4,00,000 as his freelancing income, which is without any TDS since most freelance payments are not liable to deduct tax. He also earns ₹50,000 as bank interest. After adding all these sources, his total taxable income gives rise to a tax liability of ₹2,00,600 for the year. Out of that, ₹85,000 is already covered by TDS, leaving ₹1,15,600 as the net tax payable. As that amount is considerably larger than the ₹10,000 advance tax threshold, Rishi will have to pay advance tax.

As the advance tax rules say, he must pay 15% of the net tax liability by 15 June, which amounts to ₹17,340. Subsequent installments have to be paid in due course: 45% cumulative by September, 75% cumulative by December, and 100% by March. This will keep Rishi compliant throughout the year and will also avoid interest and penalties under both Sections 234B and 234C.

How to Pay Advance Tax Online

Paying advance tax online has become fast and easy with the digital payment systems of the Income Tax Department. The most common method used is through the e-Pay Tax service provided on the Income Tax e-Filing portal. To make the payment, go to the portal, click on the e-Pay Tax option, and click on the tab entitled “Advance Tax (100)” under the category of tax payment category.

You can complete the payment using a variety of modes such as UPI, net banking, debit card, or NEFT/RTGS through authorized banks. Alternatively, taxpayers can also pay advance tax directly via their net banking account, whereby most leading banks offer a dedicated income tax payment option that links directly to the government tax-payment system. This ensures a smooth and secure payment experience without the need for any manual challans.

Why Advance Tax Is Important in FY 2025–26

Advance tax compliance has gained greater significance, especially when the Income Tax Department has started to rely on data analytics and automated monitoring systems. The department cross-verifies your income with the one reflected in Form 26AS, AIS (Annual Information Statement), TIS, and TDS records. If there is any mismatch, it may trigger alerts, notices, or scrutiny. Timely payment of advance tax helps a taxpayer to avoid interest penalties under Sections 234B and 234C, which are levied for delay and default or inadequate payment.

This also saves you from the financial shock of paying a large sum of money as tax in the last month of the financial year and thus reduces the stress of making a big, lump-sum tax payment in March. Further, paying advance tax ensures that the process of ITR filing is smooth and hassle-free, thereby reducing the chances of demand notices, delay in refund processing, or additional tax liabilities after assessment. In other words, advance tax compliance keeps you compliant, saves you from penalties, and keeps your finances in order throughout the year.

FAQ

1. What is Advance Tax?

Advance tax, also known as the “pay-as-you-earn tax,” is a system where taxpayers pay income tax in installments during the financial year instead of paying the entire amount at year-end. It becomes applicable when your net tax liability after deducting TDS/TCS exceeds ₹10,000 in a financial year.

2. Who is required to pay Advance Tax in FY 2025–26?

You must pay advance tax if:

1.     Your total annual tax liability is more than ₹10,000, and

2.     TDS does not fully cover this amount.
This applies to freelancers, business owners, professionals, investors, companies, LLPs, and salaried individuals with additional income such as rent, interest, or capital gains.

3. Who is exempt from Advance Tax?

Senior citizens aged 60 years or above who do not earn business income are completely exempt from paying advance tax, even if their tax liability exceeds ₹10,000.

4. Why is Advance Tax important in FY 2025–26?

Because the Income Tax Department now monitors income through Form 26AS, AIS, and TDS data. Any mismatch may trigger scrutiny or notices. Paying advance tax on time prevents penalty interest under Sections 234B and 234C and avoids a large tax burden at year-end.

5. How is Advance Tax calculated?

Advance tax is calculated by:

·         Estimating all income for the year

·         Computing tax using applicable slab rates

·         Subtracting TDS/TCS already deducted
If the remaining tax payable is more than ₹10,000, advance tax must be paid in quarterly installments.

6. What incomes should be included while calculating Advance Tax?

Include:

·         Salary (if TDS is insufficient)

·         Rent

·         Business/professional income

·         Capital gains

·         Bank interest (FD/SB)

·         Dividends

·         Freelancing/consulting income

·         Crypto or stock trading gains

7. What are the due dates for Advance Tax in FY 2025–26?

The due dates are:

·         15 June: 15%

·         15 September: 45% cumulative

·         15 December: 75% cumulative

·         15 March: 100%

A final adjustment can be made before 31 March of the financial year.

8. What happens if I miss Advance Tax deadlines?

You will have to pay interest under:

·         Section 234B: for not paying 90% of advance tax by March

·         Section 234C: for delay/shortfall in quarterly installments
These penalties can significantly increase your total tax outgo.

9. How can I pay Advance Tax online?

You can pay through:

·         Income Tax e-Filing portal → e-Pay Tax → “Advance Tax (100)”

·         Using UPI, net banking, debit card, NEFT/RTGS

·         Directly through net banking portals of major banks under the tax payment option

10. What is an example of Advance Tax calculation?

Rishi earns:

·         Salary: ₹10,00,000 (TDS ₹85,000)

·         Freelancing: ₹4,00,000 (No TDS)

·         Bank interest: ₹50,000

His tax liability = ₹2,00,600
Minus TDS = ₹85,000
Net tax payable = ₹1,15,600 → Advance tax applicable

He must pay:

·         By June: 15% = ₹17,340

·         Then September, December, and March as per rules.

11. Does capital gains income require Advance Tax?

Yes.
Capital gains from stocks, mutual funds, property, crypto, or other investments are taxable. If these gains increase your tax liability beyond ₹10,000, you must pay advance tax.

12. Is Advance Tax mandatory for salaried people?

Not always.
If your employer deducts enough TDS on your salary, you may not need to pay advance tax.
But if you earn additional income rent, interest, capital gains, freelance income advance tax becomes applicable.