What is Advance Tax?, Meaning, eligibility, process, due dates, and steps to calculate & more
Out of the various types of income tax payments in India, the three major ones are Tax Deducted at Source (TDS), advance tax, and self-assessment tax. TDS refers to the tax withheld or deducted by the payer at the time of making a payment. Advance tax involves paying income tax in advance in installments, if applicable. After adjusting TDS and advance tax, any remaining tax payable is paid as self-assessment tax. This article focuses on advance tax payments in India.
What is advance tax?
Advance tax refers to paying income tax in installments throughout the financial year instead of paying a lump sum after the year ends. Also known as the ‘pay-as-you-earn’ tax system, it encourages taxpayers to discharge their tax liability as income is earned.
Advance tax is paid in four installments as per the dates notified by the government. This advance payment system not only reduces the year-end financial burden on taxpayers but also helps the government manage cash flows more efficiently.
Who is liable to pay advance tax in India?
Not all taxpayers are required to pay advance tax. According to Section 208 of the Income Tax Act, advance tax is applicable if the total tax liability exceeds ₹10,000 in a financial year after adjusting TDS.
Advance tax applies to:
- Salaried individuals whose additional income – such as interest, dividends, capital gains or rental income – leads to a liability exceeding ₹10,000
- Self-employed individuals, professionals, and business owners
- Non-Resident Indians (NRIs) and foreign companies earning income in India, if the tax liability exceeds the threshold
Resident senior citizens, aged 60 years or above, who do not have income from business or profession, are exempt from paying advance tax.
You can calculate your income tax payable
Advance tax due dates for FY 2025-26 (AY 2026-27)
Advance tax must be paid in instalments as per the following schedule:
Instalment | Due date | Advance tax payable |
|---|---|---|
First | On or before 15 June 2025 | 15% of total tax liability |
Second | On or before 15 September 2025 | 45% of total tax liability minus advance tax already paid |
Third | On or before 15 December 2025 | 75% of total tax liability minus advance tax already paid |
Fourth | On or before 15 March 2026 | 100% of total tax liability minus advance tax already paid |
Taxpayers opting for the presumptive taxation scheme must pay 100% of the advance tax liability in a single instalment by 15 March 2026.
How to calculate advance tax on stock market profits
The method of calculation depends on whether the income is earned as an investor or a trader.
Investors earn profits in the form of capital gains. These gains are taxed as short-term or long-term, depending on the holding period. For equity shares and equity mutual funds, profits are treated as:
- Short-Term Capital Gains (STCG) if you sell within 12 months, taxed at 20% under the new capital gains rules.
- Long-Term Capital Gains (LTCG) if you sell after 12 months, taxed at 12.5% on gains above ₹1.25 lakh in a financial year (gains up to ₹1.25 lakh are exempt).
To calculate and pay capital gains tax, investors should first download their capital gains statements and then use those figures in their ITR:
- For mutual funds, you can get a consolidated capital gains statement from the RTA websites CAMS and KFintech by entering your PAN and registered email and selecting the relevant financial year.
- For stocks and ETFs, you can download realised P&L and capital gains reports directly from your broker’s console/back‑office (for example,m.Stock) and use those reports to fill in the capital gains schedule in your income tax return.
Traders, including those engaged in intraday trading and futures & options (F&O), earn income that is treated as business income and taxed as per applicable slab rates.
Quick steps to calculate advance tax
Step 1: Estimate your total income for the year.
Step 2: Categorise stock market income correctly.
Step 3: Account for eligible deductions.
Step 4: Compute total tax liability.
Step 5: Adjust TDS, if any.
Step 6: Pay the balance as advance tax as per the due dates.
Step-by-step guide: Advance tax payment online
Online advance tax filing is a simple process:
Step 1: Visit the official Income Tax e-filing portal.
Step 2: Click on ‘Quick links’ and select ‘e-Pay Tax’.
Step 3: Enter your Permanent Account Number (PAN) and mobile number and complete OTP verification.
Step 4: Select the first box labelled as ‘Income Tax’.
Step 5: Choose ‘Assessment Year 2026–27’ and payment type as ‘Advance Tax (100)’.
Step 6: Enter tax details.
Step 7: Select the payment mode, verify, and proceed.
Step 8: Accept the terms and conditions and submit to the bank.
Once payment is successful, a Challan Reference Number (CRN) is generated.
You can also pay advance tax online after logging into your account on the portal.
Interest and penalties for late filing under Section 234B and Section 234C
Failure to pay advance tax on time attracts interest, not a fixed penalty.
Interest under Section 234B
If at least 90% of the total tax liability is not paid by 31 March, either through advance tax or TDS, interest at 1% per month is charged on the unpaid amount.
Interest under Section 234C
Particulars | Rate of interest | Period of interest | Amount on which interest is calculated |
|---|---|---|---|
If advance tax paid by 15 June is less than 15% | 1% | 3 months | 15% of tax minus tax paid |
If advance tax paid by 15 September is less than 45% | 1% | 3 months | 45% of tax minus tax paid |
If advance tax paid by 15 December is less than 75% | 1% | 3 months | 75% of tax minus tax paid |
If advance tax paid by 15 March is less than 100% | 1% | 1 month | 100% of tax minus tax paid |
Pro-tips for m.Stock traders to manage advance tax
- Maintain clear records of trades and profit-and-loss statements for accurate computing.
- Use the correct Income Tax Return (ITR) form while filing taxes.
- Reconcile taxes paid using Form 26AS.
- Claim allowed business expenses correctly.
- Pay advance tax in the quarter in which profits are realised to avoid penalties.
Conclusion
Advance tax is a structured mechanism that ensures timely tax compliance and smoother cash flow management for both taxpayers and the government. Understanding eligibility, calculation methods, and interest provisions is essential to remaining compliant and avoiding unnecessary interest costs.
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FAQ
Yes. Advance tax is applicable on both long-term and short-term capital gains if the total tax liability exceeds ₹10,000.