Advance tax

Advance tax is income tax paid in four instalments during the tax year in which the income is earned, rather than in a single sum after the year closes, and it becomes payable the moment the estimated tax for the year, net of tax deducted and collected at source, reaches Rs. 10,000. Section 404 of the Income-tax Act, 2025 (Act No. 30 of 2025) sets that threshold for the tax year 2026-27 onwards. Section 208 of the Income-tax Act, 1961 set the identical figure for every year up to 2025-26, and still governs any default in those years.

For a central government employee or a pensioner the liability almost never attaches to the salary or the pension itself. Tax on those is deducted month by month by the drawing and disbursing officer or the pension-disbursing bank under Section 392 of the 2025 Act, formerly Section 192. Advance tax arises on what the DDO never saw: fixed-deposit interest, rent, dividends and capital gains.

Most retired government employees owe no advance tax at all. Section 403(3) of the 2025 Act, formerly Section 207(2), removes the liability entirely from a resident individual aged 60 or more at any time in the tax year who has no income under the head profits and gains of business or profession, whatever the size of the other income.

Default is expensive rather than penal. Section 425 charges 1% a month on the shortfall at each due date, and Section 424 charges another 1% a month where the total advance tax paid falls below 90% of the assessed tax. Both are simple interest, and both can bite in the same year: on a liability of Rs. 84,800 left entirely unpaid through the year and settled in July 2027, the two together come to Rs. 7,672.

This article sets out who is liable and why the threshold is a net figure, the exemption for a resident aged 60 or more and the two ways it is lost, the four due dates with the tolerance for a bank holiday, two worked computations, the interest under Sections 424 and 425 with the 12% and 36% safe harbours, how the challan is paid and corrected, what happens on an overpayment, and the full 1961 to 2025 section mapping.

Who is liable and the Rs. 10,000 threshold

Advance tax is payable by every assessee whose estimated tax for the tax year, after reducing tax deducted at source, tax collected at source and the reliefs and credits allowable, comes to Rs. 10,000 or more. Section 404 of the Income-tax Act, 2025 fixes the figure at Rs. 10,000 or more, not above Rs. 10,000, so a residual liability of exactly Rs. 10,000 attracts the obligation.

The test is the net figure. A taxpayer whose gross tax for the year is Rs. 3,00,000 but whose TDS credits come to Rs. 2,95,000 has a residual of Rs. 5,000 and owes no advance tax. A taxpayer whose gross tax is Rs. 55,000 with no TDS at all is liable on the whole of it.

Section 405 sets out the computation: estimate the current income for the year, work out the tax on it at the rates in force for that year, then subtract the tax expected to be deducted or collected at source and the reliefs and tax credits available. The estimate is the taxpayer’s own, revised as the year goes on, and there is no form to file with it.

Sections 406 and 407 give the Assessing Officer a parallel power. Where a taxpayer has already been assessed by way of a regular assessment, the officer may pass an order requiring advance tax on the basis of the last assessed income. The taxpayer may respond with a lower estimate of their own, and the officer may in turn revise the order later in the year on the strength of a subsequent return or assessment. For a salaried taxpayer or a pensioner such an order is rare, because the department has no ground to expect a materially higher income than the return shows.

Why salary and pension rarely create the liability

The salary or pension of a central government employee almost never generates advance tax, because Section 392 of the Income-tax Act, 2025, formerly Section 192 of the 1961 Act, obliges the DDO or the pension-disbursing bank to deduct the whole of the year’s estimated tax from the monthly payment. By 31 March the tax on that income has already been collected, so nothing is left to pay in instalments.

The liability comes from the income the DDO never sees. Fixed-deposit interest is the commonest source. A bank deducts tax at 10% under Section 393 of the 2025 Act, formerly Section 194A, and only once the interest crosses Rs. 50,000 in the year, or Rs. 1,00,000 for a depositor aged 60 or more, both thresholds having been raised by the Finance Act, 2025 from Rs. 40,000 and Rs. 50,000. A taxpayer in the 30% slab therefore carries a gap of 20 percentage points plus cess on every rupee of that interest, and the gap is what advance tax collects.

Rent, dividends and capital gains work the same way. Rent from a let property attracts TDS only where the tenant is liable to deduct; dividends are deducted at 10% against a slab rate that may be 30%; a capital gain on a house or on listed shares carries no TDS at all for a resident.

There is a way to avoid the instalments without avoiding the tax. Section 192(2B) of the 1961 Act, read with Rule 26B of the Income-tax Rules, 1962, lets an employee report income under any other head to the DDO, which then folds it into the monthly salary deduction, as TDS on salary sets out in detail. A loss under the head income from house property may be reported and set off; losses under other heads may not, and the reported figures cannot reduce the salary TDS below what the salary alone would attract. Where the declaration is filed early in the year, the residual liability never reaches Rs. 10,000 and no instalment falls due.

The exemption for a resident aged 60 or more

A resident individual aged 60 or more at any time in the tax year, who has no income chargeable under the head profits and gains of business or profession, is not liable to pay advance tax at all. Section 403(3) of the Income-tax Act, 2025 states it, and Section 207(2) of the 1961 Act stated it in the same terms for earlier years. The size of the other income is irrelevant: a pensioner of 67 with Rs. 40 lakh of interest income is as exempt as one with Rs. 40,000.

Three conditions must hold together. The person must be resident in India for the year, must attain 60 at some point during the year, and must have no income at all under the head profits and gains of business or profession. Attaining 60 on 28 March covers the whole of that tax year, because the section says “at any time”.

The consequence runs further than the instalments. A person outside the charge in Section 403(3) is not an assessee “liable to pay advance tax”, so neither Section 424 nor Section 425 can attach, whatever the eventual shortfall. The balance is simply paid as self-assessment tax under Section 140A of the 1961 Act before the return is filed, with no interest for having paid nothing during the year.

Two categories of retired employee fall outside the exemption and are caught in full. A pensioner below 60, including one who left under voluntary retirement at 52 or under premature retirement at 57, pays on the ordinary four-instalment schedule until the tax year in which they turn 60. And a senior citizen with any business or professional income loses it outright: consultancy fees taken by a retired officer are income under profits and gains of business or profession, and a single rupee of such receipts removes the exemption for the entire tax year, bringing pension and interest income back into the advance-tax net alongside the fees. A non-resident is outside the exemption at any age.

The four instalments and their due dates

Advance tax is paid in four instalments, carrying cumulative targets of 15%, 45%, 75% and 100% of the year’s estimated tax, due by 15 June, 15 September, 15 December and 15 March. Section 408 of the Income-tax Act, 2025 sets the schedule, as Section 211 of the 1961 Act did before it. The percentages are cumulative, not instalment-by-instalment shares, so the second payment tops the running total up to 45% rather than adding a fresh 45%.

Any amount paid on or before 31 March is still treated as advance tax for that year, so a payment made on 28 March 2027 counts as advance tax and not as self-assessment tax, even though it missed the 15 March target. That distinction matters for Section 424, which measures the total advance tax paid against 90% of the assessed tax.

A taxpayer on the presumptive scheme in Section 58 of the 2025 Act, formerly Sections 44AD and 44ADA of the 1961 Act, discharges the whole 100% in one instalment by 15 March under Section 408(2). A government employee or pensioner is on the ordinary four-instalment schedule.

Where the receiving bank is closed on a due date, payment on the next working day is in time. CBDT Circular No. 676 dated 14 January 1994 says so directly, and rests it on Section 10 of the General Clauses Act, 1897, which treats an act done on the next day the office opens as done in due time. The circular also confirms that no interest under Section 234B or Section 234C is charged in that case. All four due dates in the tax year 2026-27 fall on working days, so the relief does not arise this year; 15 March 2026 fell on a Sunday and 15 June 2025 fell on a Sunday, and in both of those years it did.

Worked example: an employee with fixed-deposit interest

Take a serving central government employee aged 45, taxed in the 30% slab, with Rs. 4,00,000 of fixed-deposit interest in the tax year 2026-27 and a salary on which the DDO deducts the full tax. The bank deducts at 10% under Section 393, which is Rs. 40,000. The tax on the interest at 30% plus 4% health and education cess is Rs. 1,24,800. Net of the TDS already deducted, Rs. 84,800 remains, which is far above the Rs. 10,000 threshold in Section 404, so all four instalments fall due.

The same figures for a resident pensioner aged 67 with no business income produce no advance tax at all. That person pays the Rs. 84,800 as self-assessment tax before filing the return for the tax year 2026-27, and neither Section 424 nor Section 425 applies.

Worked example: the interest on a year of instalments missed

Interest is the reason the schedule matters, and it is worth computing on the same figures. Take the employee above, with Rs. 84,800 of advance tax due for the tax year 2026-27, who pays nothing at all during the year and settles the whole amount as self-assessment tax on 20 July 2027 when filing the return.

Section 425 charges 1% a month on the shortfall at each due date, for three months at each of the first three dates and one month at the last. Rule 119A of the Income-tax Rules, 1962 rounds the amount on which interest is computed down to the nearest multiple of Rs. 100.

Section 425 interest comes to Rs. 4,280. Section 424 then runs on top, because nothing was paid against a liability of Rs. 84,800 and the advance tax paid is nil against a 90% threshold of Rs. 76,320. It runs at 1% a month from 1 April 2027 to the date of payment, which is four months to 20 July 2027, giving Rs. 3,392. The two together are Rs. 7,672 on a tax of Rs. 84,800, an effective 9% for the delay.

Had the same employee paid the whole Rs. 84,800 on 15 March 2027 instead, Section 424 would not apply at all, because 100% of the assessed tax was paid before the year closed. Section 425 would still charge Rs. 3,432 for the three earlier dates missed, the total above less the Rs. 848 attributable to the March date. Paying late within the year costs roughly half of paying after it.

Interest for shortfall: Section 424 and Section 234B

Section 424 of the Income-tax Act, 2025 charges simple interest at 1% a month where the advance tax paid for the year is less than 90% of the assessed tax, or where an assessee liable to advance tax paid none. Section 234B of the 1961 Act does the same for defaults up to the financial year 2025-26.

The base is the shortfall, not the whole tax. Where no advance tax was paid, interest runs on an amount equal to the assessed tax; where part was paid, it runs on the amount by which the advance tax paid falls short of the assessed tax. Assessed tax means the tax on the total income as finally determined, less tax deducted and collected at source and the reliefs allowable, so TDS credits reduce the base before the 90% test is applied.

The period runs from 1 April following the end of the tax year to the date the total income is determined under Section 270(1) or, where a regular assessment is made, to the date of that assessment. A taxpayer who files in July pays four months of it; one whose case is assessed two years later pays for the whole of that stretch, which is why Section 424 rather than Section 425 is the larger figure in a protracted case.

Rule 119A applies here as well: any part of a month counts as a full month, so payment on 2 August rather than 31 July adds a full month of interest.

Interest for deferment: Section 425 and Section 234C

Section 425 charges 1% a month on the shortfall measured at each due date against the 15%, 45%, 75% and 100% cumulative targets, for three months at each of the first three dates and one month at the fourth. Section 234C of the 1961 Act is its predecessor. The base is the tax due on the returned income, so a later upward assessment does not retrospectively enlarge the Section 425 charge.

Two statutory tolerances soften the first half of the year. No interest arises on the first instalment where at least 12%, rather than 15%, of the tax due on the returned income has been paid by 15 June, and none on the second where at least 36%, rather than 45%, has been paid by 15 September. On a liability of Rs. 84,800 those tolerances are Rs. 10,176 and Rs. 30,528. The December and March instalments carry no tolerance at all, so a rupee short of 75% on 15 December attracts interest on the full shortfall.

Income that could not have been estimated is relieved separately. No Section 425 interest arises on a shortfall attributable to capital gains, dividend income, casual income such as a lottery or crossword win, or income from a business or profession arising for the first time, provided the whole of the tax on that income is paid in the instalments still to fall due after it arose, or by 31 March of the tax year where it arose after the last due date. The relief is conditional and it is lost in full if the condition is missed: a taxpayer who sells a house in October 2026 and pays nothing on it by 15 December 2026 faces interest from that date on the whole shortfall, not merely from March.

Advance tax, TDS and self-assessment tax compared

The three are collections of the same tax at three different points in time, and a taxpayer routinely pays all three in one year. Confusing them produces the commonest challan error, which is a payment made under the wrong minor head.

Paying the challan and correcting a wrong head

Advance tax is paid online through the e-Pay Tax facility on the income-tax e-filing portal at incometax.gov.in, the successor to the old Challan 280 route. The taxpayer selects major head 0021 for income tax other than companies, and minor head 100 for advance tax. Minor head 300 is self-assessment tax and minor head 400 is tax on regular assessment, and a payment made under the wrong one is credited to the wrong account.

No separate return accompanies the payment. The challan is credited against the PAN and appears in the Annual Information Statement, not in Form 26AS, because from the assessment year 2023-24 the Annual Tax Statement on TRACES displays only tax deducted and collected at source. It is set off against the final liability when the return is filed. The amount payable is rounded to the nearest multiple of Rs. 10 under Section 288B of the 1961 Act. The Rs. 100 rounding in Rule 119A is a different rule with a different job: it rounds the base for an interest computation downwards, and it does not apply to the payment.

A wrong assessment year, major head or minor head can be fixed through the Challan Correction service on the e-filing portal. The correction is available only for a challan that has not yet been consumed against a demand or a return, only once for any given challan, only for minor heads 100, 300 and 400 under a PAN login, and only for assessment year 2020-21 onwards. The assessment year itself can be corrected within seven days of the deposit date. Beyond those limits the route is a request to the Assessing Officer.

Refund of excess advance tax

Excess advance tax is refunded with interest at 0.5% a month under Section 244A of the Income-tax Act, 1961, running from 1 April of the assessment year to the date the refund is granted. No interest is paid at all where the refund comes to less than 10% of the tax determined on regular assessment or under Section 143(1). The interest, when paid, is itself taxable as income from other sources in the year of receipt.

The asymmetry is worth stating plainly, because it decides how conservatively an estimate should be pitched. Underpayment costs 1% a month under Sections 424 and 425. Overpayment earns 0.5% a month, and earns nothing at all if the excess is small. Deliberate overpayment is therefore a cheap insurance against a wrong estimate rather than a cost-free one, and the sensible target for a taxpayer whose other income is hard to predict is the 90% mark in Section 424, which switches off the larger of the two interest charges.

The Income-tax Act, 2025 renumbering

From the tax year 2026-27 the governing statute is the Income-tax Act, 2025 (Act No. 30 of 2025), which received Presidential assent on 21 August 2025 and came into force on 1 April 2026. The advance-tax provisions are renumbered but unchanged in substance: the threshold is still Rs. 10,000, the exemption still turns on age 60 and the absence of business income, the schedule is still 15%, 45%, 75% and 100%, and the interest is still 1% a month.

A default that arose in the financial year 2025-26 stays governed by Sections 234B and 234C even where the interest is computed in 2027; defaults from the tax year 2026-27 fall under Sections 424 and 425. The Income-tax Act 2025 article covers the wider replacement, including the tax year concept that removes the separate assessment year. The challans and the e-filing portal carry both numbering systems during the transition, so a payment for the tax year 2026-27 should be made against the 2025 Act.

Related Articles

• TDS on salary (Section 192)
• Self-assessment tax
• Form 16
• Form 26AS and the AIS
• Income-tax Act 2025
• Income tax slabs for assessment year 2027-28
• Income tax for government employees
• Income tax for pensioners
• Senior citizen tax
• Section 87A rebate
• Marginal relief in income tax
• Health and education cess
• Surcharge on income tax
• New tax regime
• Old tax regime
• Old versus new tax regime
• Section 115BAC and the default new regime
• Form 10-IEA to opt out of the new regime
• How to switch tax regime
• Standard deduction
• Deductions allowed in the new tax regime
• Rebate, deduction and exemption compared
• Section 89 relief on arrears
• HRA exemption under Section 10(13A)
• Section 80C
• Professional tax
• Central Board of Direct Taxes
• NPS tax benefits
• National Pension System
• Pension arrears
• Central government pension
• Commutation of pension
• Family pension
• Voluntary retirement
• Premature retirement
• Leave encashment
• Gratuity for central government employees
• Take-home salary for central government employees
• Dearness allowance
• House rent allowance
• 7th Central Pay Commission
• Central government employees in India
• Income tax calculator
• 7th CPC salary calculator

External references

• Income Tax Department e-filing portal
• Income Tax Department: e-Pay Tax
• Income Tax Department: Challan Correction Request
• Income-tax Act and Rules
• CBDT Circular No. 676 dated 14 January 1994
• Income-tax Rules, 1962

References

1. Income-tax Act, 2025 (Act No. 30 of 2025), Section 403 (liability for advance tax, with sub-section (3) exempting a resident individual aged 60 or more without income from business or profession) and Section 404 (conditions of liability, the Rs. 10,000 threshold), in force from 1 April 2026.
2. Income-tax Act, 2025, Section 405 (computation of advance tax), Sections 406 and 407 (order of the Assessing Officer and the assessee’s own estimate), and Section 408 (instalments and due dates, with sub-section (2) for the presumptive scheme in Section 58).
3. Income-tax Act, 2025, Section 424 (interest for default in payment of advance tax) and Section 425 (interest for deferment of the instalments, with the relief for capital gains, dividend and casual income).
4. Income-tax Act, 1961, Sections 207 to 211 (advance tax) and Sections 234B and 234C (interest), which continue to govern defaults up to the financial year 2025-26.
5. Income-tax Act, 1961, Section 288B (rounding off the amount payable to the nearest multiple of ten rupees) and Section 244A (interest on refunds at 0.5% a month).
6. Income-tax Rules, 1962, Rule 119A (procedure in calculating interest: the base rounded down to a multiple of one hundred rupees, and a fraction of a month treated as a full month) and Rule 26B (declaration of other income to the employer).
7. CBDT Circular No. 676 dated 14 January 1994 (payment on the next working day where the receiving bank is closed on the due date, read with Section 10 of the General Clauses Act, 1897).
8. Finance Act, 2025 (raising the Section 194A threshold to Rs. 50,000, and to Rs. 1,00,000 for a depositor aged 60 or more, from 1 April 2025).