What is advance tax, and who must pay it?
Advance tax is simply income tax paid during the financial year in which you earn the income, rather than after the year ends. Salaried employees rarely notice it because their employer's TDS does the job. Business owners, freelancers and professionals have no employer deducting tax every month — so the law asks them to self-deposit tax in instalments.
The long-standing trigger: if your estimated tax liability for the year, after subtracting TDS/TCS credits, is ₹10,000 or more, advance tax applies. This covers:
- Proprietors, traders and manufacturers
- Freelancers and professionals (including those on presumptive schemes)
- Partnership firms, LLPs and companies
- Even salaried people with significant side income — rent, capital gains, freelance projects — that TDS doesn't fully cover
The classic exception: resident senior citizens (60+) with no business or professional income are generally exempt from advance tax.
The instalment system: how the year is sliced
For regular taxpayers, advance tax has long followed a four-instalment pattern through the financial year. The percentages are cumulative — each deadline is a running total, not a fresh 25%.
| Instalment (typically) | Cumulative advance tax payable |
|---|---|
| By mid-June | 15% of estimated annual tax |
| By mid-September | 45% of estimated annual tax |
| By mid-December | 75% of estimated annual tax |
| By mid-March | 100% of estimated annual tax |
The dates have traditionally fallen on the 15th of those months, but always confirm the current year's exact due dates on incometax.gov.in.
The presumptive shortcut: taxpayers under Sections 44AD/44ADA (see our 44AD vs 44ADA guide) typically get to pay the entire advance tax in a single instalment by mid-March — one more reason small businesses love the presumptive route.
A worked example in rupees
Say Kavita runs a boutique agency and estimates ₹4,00,000 of tax for the year, with ₹40,000 expected as TDS from clients. Her advance-tax base is ₹3,60,000. Her typical schedule:
- June: 15% of ₹3,60,000 = ₹54,000
- September: 45% cumulative = ₹1,62,000, minus ₹54,000 already paid = ₹1,08,000
- December: 75% cumulative = ₹2,70,000, minus paid = ₹1,08,000
- March: 100% = ₹3,60,000, minus paid = ₹90,000
Business had a great Diwali quarter? Re-estimate upward and adjust the December and March instalments. The estimate is yours to revise at every instalment — the law only cares that the cumulative percentages are met on each date.
Sections 234B and 234C: the cost of skipping
Two interest provisions back up the schedule. Both have traditionally charged simple interest at around 1% per month — modest-sounding, but it compounds into real money on a five- or six-figure tax bill.
Section 234C — deferring instalments
If any cumulative instalment falls short, interest typically runs at 1% per month for three months on the shortfall (one month for the final March instalment). There's built-in tolerance: paying at least ~12% by June and ~36% by September has traditionally avoided interest for those instalments, and shortfalls caused by hard-to-predict income like capital gains get relief if you pay in the next instalment.
Section 234B — falling short for the year
If by 31 March you've paid less than 90% of your assessed tax, interest typically runs at 1% per month from 1 April until you actually pay. File in December with ₹2 lakh unpaid, and 234B alone can add roughly ₹18,000 — pure cost, zero benefit.
Combined effect: a trader with a ₹3 lakh liability who pays nothing all year and settles at filing time in July could face roughly ₹20,000–₹25,000 of 234B + 234C interest. That's an EMI's worth of money donated for no reason.
Practical tips for business owners
- Estimate quarterly, not annually. Pull a profit & loss from your accounting software every quarter, apply your expected tax rate, and true-up the instalment. If reading a P&L is unfamiliar, our financial statements tutorial is the place to start.
- Count your TDS. Check Form 26AS/AIS before each instalment — tax clients have already deducted reduces what you owe.
- Keep a tax sweep account. Move a fixed percentage of every receipt (many CAs suggest 10–20% depending on margins) into a separate account so instalment day never hurts.
- Presumptive? Diarise mid-March. One payment, one date — but missing it invites 234C interest immediately.
- Pay online. Advance tax is paid as a simple e-challan on the income-tax portal in minutes.
- Reconcile at filing. Any balance becomes self-assessment tax when you file — see the ITR filing guide for business owners for the full sequence.
Let your books do the estimating
The hardest part of advance tax isn't paying — it's knowing what to pay. That requires a live picture of profit, which is exactly what year-end-only bookkeeping can't give you. iAccounting keeps your ledgers posted continuously with an AI accountant, so a quarter-to-date P&L — and with it a sensible advance-tax estimate — is always one click away. For more tax fundamentals, browse our income-tax tutorial series.