Advance Tax Calculation for FY 2025-26 — Due Dates, Interest, and Common CA Errors

What Is Advance Tax and Who Must Pay It?

Advance tax is income tax paid during the financial year in which the income is earned, rather than at the end of the year when the return is filed. The legal basis is Section 208 of the Income Tax Act, 1961, which states that advance tax is mandatory for every person whose estimated tax liability for the financial year exceeds ₹10,000 — after deducting TDS that has already been or will be deducted from the taxpayer's income.

This threshold of ₹10,000 is the net tax payable after TDS credit. If an employee's entire salary tax is covered by TDS under Section 192, their advance tax liability may be nil. But if the same employee earns additional interest, dividend, rental, or capital gains income on which no TDS is deducted (or insufficient TDS is deducted), the residual tax on that income creates an advance tax obligation.

Common categories of taxpayers who regularly have advance tax obligations:

• Salaried individuals with side income — rent, interest, capital gains, freelancing
• Freelancers and consultants (TDS is deducted at 10% under Section 194J, but actual tax may be higher)
• Traders — equity delivery, F&O, intraday
• Business owners
• Individuals with large capital gains (especially where no TDS applies, such as equity shares sold through the exchange)
• HNIs with dividend and interest income

Section 207 — Senior Citizen Exemption from Advance Tax

Section 207 of the Income Tax Act provides a specific exemption from advance tax for a narrow category of taxpayers. A resident individual who is 60 years of age or more at any time during the financial year is not liable to pay advance tax, provided the individual does not have any income chargeable under the head "Profits and Gains of Business or Profession."

This means:

• A retired senior citizen with only pension, interest, dividend, rental, and capital gains income — exempt from advance tax. The entire tax can be paid as self-assessment tax when filing the ITR.
• A senior citizen who runs a business or has professional income (even freelancing income) — not exempt. The Section 207 exemption does not apply if there is any business or professional income, regardless of its quantum.

Note: Non-resident senior citizens do not qualify for this exemption — Section 207 is restricted to resident individuals.

Advance Tax Due Dates and Instalments — Section 211

Under Section 211, advance tax for FY 2025-26 is payable in four instalments:

The percentages are cumulative. By 15 September 2025, a total of 45% of the year's advance tax must have been paid — including the 15% that was due in June. By 15 March 2026, the entire estimated advance tax liability must be settled.

Taxpayers who opt for the presumptive taxation scheme under Section 44AD (eligible business taxpayers) pay advance tax in a single instalment — 100% by 15 March 2026. This single-instalment option is not available for professionals under Section 44ADA or for F&O traders.

Interest for Non-Payment — Section 234B

Section 234B applies when the total advance tax paid by 31 March 2026 is less than 90% of the assessed tax (the final tax determined after return filing). Interest under Section 234B is:

• Rate: 1% per month (or part of a month) on the shortfall
• Period: From 1 April 2026 (the start of the assessment year) to the date of actual payment of tax (either self-assessment tax payment or date of regular assessment order)
• Base: Assessed tax minus TDS minus advance tax paid

For example, if a taxpayer's assessed tax is ₹5,00,000 and they paid only ₹3,00,000 in advance tax (60% — less than 90%), Section 234B interest accrues on the shortfall of ₹2,00,000 from April 2026 until the date of payment. If the ITR is filed in July 2026 with the balance tax, interest runs for four months (April, May, June, July) — ₹2,00,000 × 1% × 4 = ₹8,000.

Interest for Shortfall at Each Instalment — Section 234C

Section 234C imposes interest for deferred payment of advance tax — even if the total advance tax eventually paid exceeds 90% of assessed tax. It computes shortfall at each instalment date:

The shortfall at each instalment is the excess of the required cumulative amount over the actual cumulative advance tax paid as of that date. Section 234C interest is charged at 1% per month on this shortfall — for a fixed duration (3 months for the first three instalments, 1 month for the final instalment) — regardless of when the shortfall is actually made good.

Section 234C Exceptions — Capital Gains, Winnings, and Casual Income

Section 234C contains specific exceptions for income that arises unexpectedly or cannot be predicted at the start of the year:

• Capital gains: If capital gains arise after the due date of an advance tax instalment, no Section 234C interest is charged for that instalment in respect of those capital gains. The entire advance tax on such capital gains is payable in the remaining instalments — or if it arises after 15 December, entirely in the instalment of 15 March. Example: if a client books significant LTCG in January 2026, the entire advance tax on that gain is due by 15 March 2026 (the only remaining instalment), with no Section 234C interest for the missed June, September, and December instalments.
• Casual income / winnings from lotteries, crossword puzzles, etc. (Section 115BB): Similar exception applies — advance tax on such income is payable only in the remaining instalments after the income arises.
• Dividends under Section 2(22)(e): Same exception applies for deemed dividends.

This exception applies only to Section 234C. Section 234B interest still applies if the total advance tax paid falls short of 90% of assessed tax — the 234C exception only waives the instalment-level interest, not the overall shortfall interest.

How to Compute Advance Tax — Step-by-Step

The computation of advance tax liability for each instalment follows these steps:

1. Estimate total income for the financial year under all heads — salary, house property, business/profession, capital gains, other sources. Use the best available estimate at each instalment date — revise upward if income grows during the year.
2. Apply applicable deductions under Chapter VIA (80C, 80D, 80G, etc.) for the chosen regime, or standard deduction if salaried. Under the new tax regime, most Chapter VIA deductions are not available (other than Section 80CCD(2) employer NPS contribution and Section 80CCH).
3. Compute tax on net total income — apply slab rates per the chosen regime. Add surcharge if applicable.
4. Add 4% health and education cess to arrive at gross tax liability.
5. Deduct TDS — estimate TDS that will be deducted from salary (Form 12BB-based estimate from employer), interest (10% TDS on FD interest above ₹40,000 under Section 194A), professional fees (10% under Section 194J), etc.
6. The balance is the advance tax liability. If this exceeds ₹10,000, advance tax must be paid per the instalment schedule.
7. Compute the instalment amount: Multiply the total advance tax liability by the required cumulative percentage for that instalment, then subtract advance tax already paid in prior instalments.

Illustration — Salaried Individual with Trading Income

Suppose a client (AY 2026-27, new tax regime) has estimated income of:

• Salary (net of standard deduction ₹75,000): ₹12,00,000 — fully covered by TDS under Section 192 (employer deducts ₹70,000 in tax)
• STCG from equity (Section 111A): ₹3,00,000 — no TDS
• Bank FD interest: ₹80,000 — TDS at 10% = ₹8,000 deducted by bank

Total estimated tax:

• Tax on salary (₹12,00,000 under new regime): ₹70,000 (87A rebate eliminates slab-rate tax on salary) = ₹0 slab-rate tax after rebate
• Tax on FD interest (added to salary slab): ₹8,000 (covered by TDS)
• Tax on STCG ₹3,00,000 at 20% (Section 111A): ₹60,000
• Cess on STCG tax: ₹2,400
• Total gross tax: ₹70,400
• Less TDS by employer: ₹70,000 (salary) + ₹8,000 (FD) = ₹78,000
• Net advance tax liability: ₹70,400 − ₹78,000 = negative (TDS exceeds gross tax on salary + FD) — but the ₹62,400 STCG tax is not covered by TDS

In this case, the net advance tax liability is approximately ₹62,400 (the STCG tax not covered by TDS). This exceeds ₹10,000, so advance tax is mandatory.

How to Pay — Challan 280 (ITNS 280)

Advance tax is paid using Challan 280 (ITNS 280) — the standard income tax payment challan. Payment can be made:

• Online: Through the Income Tax Department e-filing portal (incometax.gov.in) under the "e-Pay Tax" section, or through the NSDL/Protean TIN portal (tin.tin.nsdl.com). Payments via net banking, debit card, RTGS, NEFT, or payment gateway are accepted.
• Offline: At authorised bank branches (listed by the Income Tax Department) by submitting the physical Challan 280.

When filling Challan 280, select:

• Tax Applicable: (0021) Income Tax (Other than Companies)
• Type of Payment: (100) Advance Tax
• Assessment Year: 2026-27

The challan counterfoil (BSR code, challan serial number, and date of payment) must be retained for entry in the ITR. TDS credits appear in Form 26AS automatically, but advance tax paid via Challan 280 may take a few days to reflect — verify in Form 26AS before filing the return.

New Tax Regime vs Old Tax Regime — Impact on Advance Tax

The advance tax computation is directly affected by the tax regime chosen:

• New regime: Lower slab rates (0%, 5%, 10%, 15%, 20%, 25%, 30% per Finance Act 2025 slabs) but fewer deductions available. The ₹60,000 Section 87A rebate for income up to ₹12 lakh under the new regime can significantly reduce the slab-rate tax component — but not the special-rate capital gains tax.
• Old regime: Higher slab rates but deductions under Sections 80C, 80D, 80G, HRA exemption, LTA, home loan interest (Section 24), etc. can substantially reduce taxable income. The ₹12,500 rebate under Section 87A applies for income up to ₹5 lakh.

The advance tax computation must use the same regime the taxpayer intends to adopt for the full year. If the regime is changed at the time of ITR filing (which salaried individuals can do), the interest calculations under 234B and 234C may need to be recomputed. CAs should use the anticipated final regime when computing advance tax estimates for clients — and advise clients to communicate their regime choice to the employer at the start of the year.

Common Errors CAs Must Avoid

• Ignoring capital gains when estimating advance tax: Many CAs compute advance tax only on salary and business income, forgetting that capital gains (especially large LTCG or STCG from equity) create a separate advance tax obligation not covered by TDS.
• Applying the Section 234C exception too broadly: The 234C exception for capital gains applies only to capital gains that arose after the instalment due date. Capital gains booked before the June due date must be included in the June instalment estimate. Some CAs incorrectly exclude all capital gains from advance tax calculations on the assumption that the 234C exception covers them.
• Not accounting for 234B: Even if capital gains arose late in the year and Section 234C interest is waived, Section 234B interest still applies if total advance tax paid is less than 90% of assessed tax. The two sections are independent.
• Senior citizen exemption applied to business income earners: Section 207 exempts only resident senior citizens without business/professional income. Applying it to a senior citizen with even a small amount of freelancing or business income is incorrect.
• Using incorrect assessment year in Challan 280: Advance tax for FY 2025-26 must be entered against AY 2026-27 in the challan. Using AY 2025-26 is a common data entry error that creates a mismatch in tax credit records.
• Not verifying Form 26AS after payment: Advance tax paid via Challan 280 should be verified in Form 26AS before filing the ITR. Discrepancies between the challan record and Form 26AS must be resolved with the bank before filing.
• Presumptive taxation clients paying in instalments: Taxpayers under Section 44AD (eligible businesses) must pay 100% of advance tax by 15 March 2026 in a single instalment — not in four instalments. Paying in four instalments is technically incorrect (though not adverse as long as 100% is paid by 15 March).

How FirstReports Helps

Advance tax on capital gains is impossible to estimate accurately unless the CA has a clear, consolidated view of the client's realized gains across all brokers at each instalment date. When clients trade on Zerodha, Groww, Angel One, and one or two other platforms simultaneously, manually aggregating gains before each quarterly instalment is error-prone and time-consuming. FirstReports consolidates P&L data from all major Indian brokers into a single statement, giving CAs the realized STCG and LTCG figures needed to compute advance tax estimates — at any point during the year, not just at filing time.

Related Reading

• ITR Filing Guide for Income Below ₹50 Lakh (FY 2025-26)
• ITR Filing Guide for Income Above ₹50 Lakh (FY 2025-26)
• How to Calculate STCG and LTCG for ITR-2 (FY 2025-26)
• Download capital gains reports from all major brokers →