As the financial year draws to a close, taxpayers have one more key date to remember. for the financial year 2025–26. Those who still have unpaid tax liability must clear it by this date to avoid interest charges later.
Advance tax simply means paying income tax in parts during the financial year instead of paying the entire amount while filing the income tax return. The system is designed so that taxes are paid gradually as income is earned.
Advance tax becomes mandatory if a person’s total tax liability for the financial year is more than Rs 10,000 after adjusting tax deducted at source (TDS), tax collected at source (TCS), and available tax credits.
This rule generally affects people who earn income where tax is not automatically deducted. Freelancers and consultants often fall into this category because they receive payments without TDS in many cases. Similarly, individuals who run their own businesses or professional practices may also need to calculate and pay advance tax.
Taxpayers earning capital gains from shares or mutual funds, individuals receiving rental income, and those earning interest from deposits or other investments may also need to pay advance tax if their tax liability crosses the Rs 10,000 threshold.
Even salaried employees may sometimes come under the advance tax requirement. This usually happens when they have additional sources of income that are not fully covered by TDS. For example, profits from stock market investments, gains from cryptocurrency trading, rental income, or earnings from side businesses can create extra tax liability during the year.
However, there is an important exemption. Resident senior citizens aged 60 years or above who do not have income from business or profession are not required to pay advance tax.
Taxpayers who choose the presumptive taxation scheme under the Income Tax Act follow a slightly different system. Instead of paying tax in four instalments during the year, they are required to pay the entire advance tax amount in a single instalment by March 15.
This option is commonly used by small businesses and professionals who declare income under simplified taxation rules.
The Income Tax Department has set a fixed schedule for advance tax payments during the year. Taxpayers are expected to pay a portion of their estimated tax liability at different stages.
The first instalment is due by June 15, when at least 15 percent of the total tax liability should be paid. By September 15, the total payment should reach 45 percent. By December 15, taxpayers are expected to have paid at least 75 percent of their total liability.
The final instalment, due on March 15, requires taxpayers to settle the entire tax liability for the financial year through advance tax payments.
Taxpayers who fail to pay advance tax on time may have to pay interest under the Income Tax Act. The law provides for interest charges under Sections 234B and 234C if the required tax is not paid within the scheduled dates.
If the instalment is missed or the amount paid is lower than the required level, interest of 1% per month may be charged on the unpaid amount.
In addition, if a taxpayer has paid less than 90% of the total tax liability by March 15, interest under Section 234B may continue to apply until the outstanding tax is fully cleared.
For many taxpayers, especially those with multiple income sources, reviewing their tax liability before the March 15 deadline can help avoid unnecessary interest charges and ensure a smoother tax filing process later.