Advance tax is tax paid during the year on the income expected to be earned in the year, instead of in a lump at the end. It applies to companies, firms, LLPs, and other taxpayers whose tax for the year, after deducting tax already withheld, is large enough to call for it. The Income-tax Act, 2025 retains the pay-as-you-earn approach. The first date of the first tax year under the new Act is 15 June 2026.
What section 408 says
Section 408(1) of the Income-tax Act, 2025 requires advance tax to be paid on the current income in four instalments during each financial year. The percentages are cumulative:
- On or before 15 June: not less than 15 per cent of the advance tax.
- On or before 15 September: not less than 45 per cent, reduced by the amount paid in the earlier instalment.
- On or before 15 December: not less than 75 per cent, reduced by the amounts paid earlier.
- On or before 15 March: the whole amount, reduced by the amounts paid earlier.
Section 408(3) provides that an amount paid by way of advance tax on or before 31 March is treated as advance tax paid during the financial year ending on that day.
A worked example
Suppose a company expects tax of Rs 8,00,000 for tax year 2026-27 after taking account of tax deducted at source. The cumulative payments are:
- By 15 June 2026: 15 per cent, which is Rs 1,20,000.
- By 15 September 2026: 45 per cent, which is Rs 3,60,000 in all, so Rs 2,40,000 more.
- By 15 December 2026: 75 per cent, which is Rs 6,00,000 in all, so Rs 2,40,000 more.
- By 15 March 2027: the whole Rs 8,00,000, so Rs 2,00,000 more.
If the estimate is revised during the year, the later instalments absorb the difference, but the cumulative percentage still has to be reached at each date.
The presumptive exception
Section 408(2) provides that a person who declares profits and gains under section 58(2) (the entries at serial numbers 1 or 3 of the table in that section) pays the whole advance tax in one instalment by 15 March. Such a person has no June, September, or December instalment.
How the estimate is made
The advance tax is worked out on the current income, calculated in the manner section 405 lays down. In practice, this is a forecast of the year’s taxable income from the management accounts to date, with the known adjustments, less tax withheld on the income. The forecast is stronger when the monthly close is on time, which is why a first instalment is easy to set when April’s books are closed in early May. See the month-end close checklist.
- Start from the profit before tax in the management accounts, annualised only where the business is not seasonal.
- Add back items that are not deductible for tax and deduct items allowed that are not in the accounts.
- Compute the tax at the rate that applies to the entity, and subtract tax deducted or collected at source for the year.
- Apply the cumulative percentage for the date.
Interest on shortfall
The Act charges interest where an instalment falls short or is deferred. The rates and conditions are in the interest provisions of the Act and should be read for the entity’s facts; the reliable protection is to compute the instalment with some margin and to revisit the estimate each quarter.
Keep this year separate from the last
Advance tax paid for tax year 2026-27 is not the same as tax paid for assessment year 2026-27, which is the 1961 Act’s name for FY 2025-26. Mark each challan with the right year and Act. See what changed from 1 April 2026.
Records to keep ready
- Management accounts to the end of the previous month
- Forecast of taxable income and the computation of tax on it
- TDS and TCS credit to date, agreed to Form 26AS
- Challans for each instalment, marked with the tax year