Advance tax is the most avoidable interest cost in Indian taxation, and the one we see most often. Not because it is complicated — because nothing prompts you.
If your estimated tax liability for the year, after TDS and TCS, exceeds ₹10,000, you are required to pay it in instalments through the year rather than at the end. Miss the instalments and interest runs under the old Sections 234B and 234C — now Sections 424 and 425 of the Income-tax Act, 2025.
The schedule for FY 2026-27
| Instalment | Due | Cumulative |
|---|---|---|
| First | 15 June 2026 | 15% |
| Second | 15 September 2026 | 45% |
| Third | 15 December 2026 | 75% |
| Fourth | 15 March 2027 | 100% |
Cumulative, not incremental — by 15 September you should have paid 45% of the year's liability in total, not 45% in that instalment.
How the two interest charges differ
People conflate these. They do different jobs.
Section 425 (formerly 234C) penalises missing the instalment dates. It runs at 1% per month on the shortfall for each instalment, for three months per instalment — one month for the final one. You can owe this even if you pay everything by 31 March.
Section 424 (formerly 234B) penalises not having paid at least 90% of your total tax by the end of the financial year. It runs at 1% per month from April until you actually pay.
So a taxpayer who pays nothing until filing in July owes both: 425 for missing four instalment dates, and 424 running from April through July.
Two exemptions worth knowing
A resident aged 60 or above with no business or professional income is not required to pay advance tax at all. The moment there is business income, the exemption falls away.
Taxpayers under the presumptive schemes — the old 44AD and 44ADA — may pay the entire year's advance tax in a single instalment by 15 March, rather than across four dates. This concession does not extend to 44AE.
A ₹1 crore year with ₹12 lakh of TDS credited still leaves a large advance tax gap that nobody computed in June.
Why lumpy income makes this worse
Advance tax assumes you can estimate your annual income in June. For salaried taxpayers with TDS deducted at source, that is mostly automatic. For anyone with business income, capital gains, or income that arrives in bursts, it is a genuine forecasting exercise — and one that has to be redone each quarter as the picture changes.
Capital gains are the classic case. You cannot predict them in June, so the law allows you to pay the tax on a gain in the instalment falling due after the gain arises. But you have to actually do it, and the gain has to be tracked.
What good practice looks like
A working routine
- Re-estimate annual income in the first week of June, September, December and March — not once in June.
- Pull your Form 26AS and AIS each quarter so TDS already credited is netted off rather than guessed.
- Track capital gains as they arise and fold them into the next instalment.
- Keep the challans. Reconciling payments against the return in July is far easier with them to hand.
None of this is difficult. It simply needs to happen on four dates that nobody reminds you about. If you would rather it sat on someone else's calendar, that is precisely what a compliance retainer is for.
This article is general guidance as at 26 August 2026 and is not advice on any specific situation. References reflect the Income-tax Act, 2025 (in force from 1 April 2026), the CGST and IGST Acts as amended, and GST rates effective 22 September 2025. Please obtain advice on your own facts before acting.