Payment and Penalty explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
What is Advance Tax?
Advance tax is income tax paid in instalments during the financial year, rather than as a lump sum at the end. It is sometimes called "pay as you earn" tax. If your total tax liability for the year (after TDS) exceeds ₹10,000, you are required to pay advance tax.
Advance tax applies to all taxpayers — salaried employees (if TDS is insufficient), freelancers, self-employed professionals, business owners, traders, and those with capital gains, rental income, or dividend income.
- Any person whose estimated tax liability for the year is ₹10,000 or more after TDS
- Senior citizens (60+) are exempt from advance tax — but only if they do NOT have income from business or profession
- Presumptive taxation scheme taxpayers (Section 44AD / 44ADA) can pay advance tax in a single instalment by 15 March
Advance Tax Due Dates for FY 2025-26
For individuals and companies (other than presumptive scheme), advance tax is paid in 4 instalments:
| Instalment | Due Date | Cumulative % of Tax Payable |
|---|---|---|
| 1st Instalment | 15 June 2025 | At least 15% |
| 2nd Instalment | 15 September 2025 | At least 45% |
| 3rd Instalment | 15 December 2025 | At least 75% |
| 4th Instalment | 15 March 2026 | 100% |
For Presumptive Scheme Taxpayers (Section 44AD / 44ADA)
| Who | Due Date | Amount |
|---|---|---|
| Business (Section 44AD) | 15 March 2026 | 100% of tax liability |
| Professionals (Section 44ADA) | 15 March 2026 | 100% of tax liability |
How to Calculate Advance Tax
Advance tax is calculated on your estimated total income for the financial year. Follow these steps:
Step 1: Estimate Total Income
Add all expected income sources for FY 2025-26:
- Salary income (after standard deduction of ₹75,000)
- Income from house property (rental income less 30% standard deduction)
- Capital gains (STCG and LTCG)
- Business/profession income
- Other sources (interest, dividends, etc.)
Step 2: Compute Gross Tax Liability
Apply the applicable tax slab (new regime or old regime) to your estimated total income. Add surcharge and 4% health and education cess.
Step 3: Subtract TDS
Deduct TDS already deducted or expected to be deducted by employer, bank, tenant, etc.
Step 4: Check if Advance Tax is Required
If (Gross Tax - TDS) > ₹10,000 ÔåÆ Advance tax is required.
Step 5: Calculate Each Instalment
| Instalment | Amount to Pay |
|---|---|
| 1st (by 15 June) | 15% of estimated annual tax - TDS paid so far |
| 2nd (by 15 Sept) | 45% of estimated annual tax - TDS paid so far - advance tax paid |
| 3rd (by 15 Dec) | 75% of estimated annual tax - TDS paid so far - advance tax paid |
| 4th (by 15 Mar) | 100% of estimated annual tax - TDS paid so far - advance tax paid |
Advance Tax Calculation Example
Mr. Sharma (salaried + freelance income) estimates for FY 2025-26:
| Income Head | Amount |
|---|---|
| Salary (after standard deduction) | ₹12,00,000 |
| Freelance income | ₹5,00,000 |
| Interest income | ₹50,000 |
| Total estimated income | ₹17,50,000 |
Tax under new regime (FY 2025-26):
| Slab | Income | Tax |
|---|---|---|
| Up to ₹4,00,000 | ₹4,00,000 | ₹0 |
| ₹4,00,001 – ₹8,00,000 @ 5% | ₹4,00,000 | ₹20,000 |
| ₹8,00,001 – ₹12,00,000 @ 10% | ₹4,00,000 | ₹40,000 |
| ₹12,00,001 – ₹16,00,000 @ 15% | ₹4,00,000 | ₹60,000 |
| ₹16,00,001 – ₹17,50,000 @ 20% | ₹1,50,000 | ₹30,000 |
| Gross tax | ₹1,50,000 | |
| Add: 4% cess | ₹6,000 | |
| Total tax liability | ₹1,56,000 |
TDS deducted by employer: ₹80,000
Net advance tax liability: ₹1,56,000 - ₹80,000 = ₹76,000
Advance tax schedule:
| Instalment | Cumulative % | Cumulative Amount | Already Paid (TDS) | To Pay Now |
|---|---|---|---|---|
| By 15 June 2025 | 15% | ₹23,400 | ₹20,000 | ₹3,400 |
| By 15 Sept 2025 | 45% | ₹70,200 | ₹40,000 | ₹26,800 |
| By 15 Dec 2025 | 75% | ₹1,17,000 | ₹60,000 | ₹19,600 |
| By 15 Mar 2026 | 100% | ₹1,56,000 | ₹80,000 | ₹26,200 |
How to Pay Advance Tax Online
Advance tax is paid using Challan No. ITNS 280 on the Income Tax e-filing portal:
- Go to incometax.gov.in  e-Pay Tax
- Enter your PAN and confirm with OTP
- Select Income Tax  Advance Tax (100)
- Enter Assessment Year: 2026-27 (for FY 2025-26)
- Enter the advance tax amount
- Pay via Net Banking, Debit Card, UPI, or RTGS/NEFT
- Download the challan receipt (BSR code + Challan serial number required while filing ITR)
Advance Tax on Capital Gains
Capital gains may not be predictable in advance. Special rules apply:
- If capital gains arise after 15 September: The remaining instalments (15 Dec and 15 Mar) must include capital gain tax. No interest under 234C for the 1st and 2nd instalments.
- If capital gains arise after 15 December: The 15 March instalment must include capital gain tax. No interest for 1st, 2nd, or 3rd instalments.
- Entire capital gains tax (if gains arise in March) can be paid in the last instalment by 15 March.
- TDS under Section 194-IA (property sale) can be deducted from advance tax liability.
Penalty for Non-Payment of Advance Tax
Section 234B — Default in Payment
If advance tax paid is less than 90% of assessed tax, interest under Section 234B is charged:
- Rate: 1% per month (simple interest)
- Period: From April 1 of AY to date of payment of tax / date of processing of ITR
- Calculated on shortfall amount (assessed tax - advance tax paid - TDS)
Section 234C — Deferral of Instalments
Interest is charged if each instalment is short-paid:
| Instalment Shortfall | Interest Rate | Period |
|---|---|---|
| 1st instalment (15 June) — paid less than 15% | 1% per month | 3 months |
| 2nd instalment (15 Sept) — paid less than 45% | 1% per month | 3 months |
| 3rd instalment (15 Dec) — paid less than 75% | 1% per month | 3 months |
| 4th instalment (15 Mar) — paid less than 100% | 1% per month | 1 month |
Example: If you were supposed to pay ₹30,000 by 15 September but paid only ₹10,000, the shortfall is ₹20,000. Interest = ₹20,000 ├ù 1% ├ù 3 months = ₹600.
Section 234A — Late Filing of ITR
This is not specific to advance tax but related — if ITR is filed late, interest at 1% per month on outstanding tax is charged from the ITR due date onwards.
Common Mistakes in Advance Tax Payment
- Not accounting for freelance/side income: TDS from salary may not cover total liability. Calculate net tax position carefully.
- Forgetting capital gains: Stock market profits, property sale, MF redemptions — all increase tax liability mid-year.
- Wrong Assessment Year: Always select AY 2026-27 (not FY 2025-26) while making payment.
- Not saving challan: Challan details (BSR code, serial number, date) are required while filing ITR to get credit for advance tax paid.
- Ignoring dividend income: Since FY 2020-21, dividends are taxable in hands of recipient — must be included in advance tax estimate.
Advance Tax vs Self-Assessment Tax
| Feature | Advance Tax | Self-Assessment Tax |
|---|---|---|
| When paid | During the financial year (June, Sept, Dec, Mar) | Before filing ITR (after FY ends) |
| Challan type | ITNS 280, Type: 100 | ITNS 280, Type: 300 |
| Interest if not paid | Section 234C (deferral) | Section 234A (late filing) + 234B |
| Applies when | Tax > ₹10,000 for the year | Any remaining tax after TDS and advance tax |
Key Facts About Payment and Penalty
- Applies in: All states across India, under the relevant central law.
- Mode: Mostly online via the official government portal.
- Typical timeline: Ranges from a few days to a few weeks depending on the case.
- Non-compliance: May attract penalties, interest or late fees.
- Expert help: TaxClue completes the entire process end to end for you.
What is Payment and Penalty?
Payment and Penalty is an important compliance and legal topic for businesses and individuals in India. This guide explains its meaning, applicability and key requirements in simple language so you can understand and stay fully compliant.
Who needs to know about Payment and Penalty?
Business owners, startups, professionals, and taxpayers dealing with Payment and Penalty should understand the applicable rules. Requirements can vary by turnover, entity type and activity, so it is best to confirm your specific case before proceeding.
Over 90% of compliance penalties in India arise from missed due dates — timely handling can save businesses thousands of rupees each year.
Payment and Penalty: a key compliance topic in Indian tax and corporate law that businesses and individuals must understand to remain compliant.