You earn income, your employer deducts TDS, and at the end of the year you file your return. That covers most salaried taxpayers. But if you have income beyond salary - freelance projects, rental income, capital gains, FD interest, dividends - TDS often doesn’t cover your full liability. The Income Tax Act requires you to settle that gap during the year itself, in instalments. This is advance tax.
The Income Tax Act 2025 is now the governing law. Most sections have been renumbered. If you’ve been citing Section 208 or Section 234C from memory or from old articles, those section numbers no longer exist. Here’s what the current law actually says.
Who has to pay - Section 403 and Section 404
Two conditions must both be met before advance tax applies to you.
Section 403 is the liability section. It says advance tax is payable by every assessee on their current income for the tax year. “Current income” is defined in the section itself as the total income that would be chargeable to tax for that tax year.
Section 403(3) carves out one exemption: a resident individual aged 60 or more who has no income from business or profession is not liable to pay advance tax. So a retired senior citizen with pension, interest, and rental income is exempt. The moment that senior citizen has any business or professional income, the exemption falls away.
Section 404 adds the monetary threshold: advance tax is only payable if the amount computed under the advance tax provisions is ₹10,000 or more for the financial year. Below that, no advance tax obligation arises for anyone.
Under the 1961 Act, the exemption was in Section 207 and the threshold was in Section 208. Both are now replaced.
| Provision | IT Act 1961 | IT Act 2025 |
|---|---|---|
| Liability and senior citizen exemption | Section 207 | Section 403 |
| ₹10,000 threshold | Section 208 | Section 404 |
| Computation formula | Section 209 | Section 405 |
| Payment on own accord | Section 210 | Section 406 |
| Payment per AO order | Section 210 | Section 407 |
| Instalment schedule and due dates | Section 211 | Section 408 |
| Default interest (< 90% paid) | Section 234B | Section 424 |
| Deferment interest (instalment shortfall) | Section 234C | Section 425 |
How advance tax is computed - Section 405
The formula under Section 405:
A = B − C
A = Advance tax payable
B = Income tax on the “specified sum” at current year rates
C = TDS/TCS already deducted or collected at source during the year, on income included in the specified sum
When you pay on your own accord under Section 406, “specified sum” means your current income as estimated by you. You are not locked into your previous year’s income or any AO-determined figure - you estimate, compute, subtract expected TDS, and pay the balance in instalments.
You can revise your estimate upward or downward in any remaining instalment. Section 406(2) explicitly allows this. There is no form required - you simply adjust the next instalment amount.
Instalment schedule - Section 408
Four instalments for most assessees, with cumulative thresholds:
| Instalment | Due date | Minimum cumulative payment |
|---|---|---|
| 1st | 15 June | 15% of advance tax |
| 2nd | 15 September | 45% of advance tax |
| 3rd | 15 December | 75% of advance tax |
| 4th | 15 March | 100% (balance) |
So for Tax Year 2026-27, your first instalment is due on 15 June 2026.
One important rule under Section 408(3): any advance tax paid on or before 31 March is treated as advance tax for that financial year. So a payment made between 16 March and 31 March is still advance tax - late, and attracting deferment interest for the 15 March shortfall, but it counts.
Presumptive taxpayers (those declaring income under Section 58(2), which covers businesses and professions under the presumptive scheme) are not required to pay in four instalments. They pay the entire amount in one instalment by 15 March. Section 408(2) governs this.
Interest for short payment and deferment - Sections 424 and 425
Two separate interest provisions apply, and they work differently.
Section 424 (replaces Section 234B): If your total advance tax paid is less than 90% of assessed tax, you pay simple interest at 1% per month from 1 April of the following tax year until the date of assessment.
Section 425 (replaces Section 234C): This operates instalment by instalment, comparing what you paid by each due date against what you should have paid based on your returned income:
| Instalment | Benchmark | Interest on shortfall |
|---|---|---|
| 15 June | 15% of tax on returned income | 3% flat |
| 15 September | 45% of tax on returned income | 3% flat |
| 15 December | 75% of tax on returned income | 3% flat |
| 15 March | 100% of tax on returned income | 1% |
Two safe harbours exist under Section 425(2):
- Pay at least 12% of tax on returned income by 15 June → no deferment interest on the first instalment
- Pay at least 36% by 15 September → no deferment interest on the second instalment
Note that Section 425 measures shortfall against tax on returned income, not against your estimate during the year. If you underestimate your income significantly and the gap shows up in your return, deferment interest is computed on that gap.
A worked example
Rahul is a freelance UX designer. For Tax Year 2025-26, he estimates:
- Professional income: ₹18,00,000
- Estimated deductions: ₹1,50,000
- Taxable income: ₹16,50,000
- Tax liability (new regime, approximate): ₹2,10,000
- Expected TDS on professional receipts: ₹60,000
- Advance tax payable: ₹1,50,000
| Instalment | Due date | Amount to pay |
|---|---|---|
| 1st | 15 June 2025 | ₹22,500 (15%) |
| 2nd | 15 Sept 2025 | ₹45,000 (cumulative 45% = ₹67,500, less ₹22,500 paid) |
| 3rd | 15 Dec 2025 | ₹45,000 (cumulative 75% = ₹1,12,500, less ₹67,500 paid) |
| 4th | 15 Mar 2026 | ₹37,500 (balance) |
If Rahul pays exactly these amounts on time, no interest arises under either Section 424 or 425.
What trips people up
My TDS covers most of my tax, do I still need to pay advance tax?
Yes, if the gap after TDS is ₹10,000 or more. TDS on salary only covers salary income. If you have FD interest, rental income, or capital gains where TDS is lower or absent, you compute the net liability and pay advance tax on it.
I sold property in December. Do I need to revise my advance tax?
Yes. Capital gains from property sale need to be included in your estimate from the next instalment onwards. If you’ve already missed the 15 December instalment, include the full amount in the 15 March instalment. Section 425 provides some relief for capital gains and dividend income if the tax on them is paid by 31 March - confirm the specific provision applies to your situation.
I’m under presumptive taxation. Do I have to pay four instalments?
No. Section 408(2) requires you to pay the entire advance tax in one instalment by 15 March. Miss that, and Section 425(3) applies: 1% simple interest on the shortfall.
I overpaid advance tax. Can I get a refund?
Yes. Section 410 treats advance tax as a credit against your regular assessment. If the credit exceeds your final tax liability, the excess becomes a refund after assessment.
Key takeaways
- Every section number for advance tax has changed in the IT Act 2025. Section 207, 208, 211, 234B, 234C no longer exist - the governing sections are 403, 404, 408, 424, and 425.
- The first instalment for Tax Year 2026-27 is due on 15 June 2026, so mark it in your calendar.
- Senior citizens aged 60 or more with no business or professional income are exempt under Section 403(3). Any business income removes that exemption entirely.
- Presumptive taxpayers pay in one shot by 15 March - but still owe deferment interest under Section 425(3) if they miss it.
Questions about your specific advance tax calculation? Drop them below.