How do I calculate and pay advance tax in India?

## Advance Tax Calculation and Payment in India

### Why Advance Tax Exists

The Indian government collects income tax on a pay-as-you-earn basis. Rather than allowing companies to accumulate their entire tax liability and pay it all in October when the ITR-6 is filed, advance tax requires periodic payments throughout the year. This improves government cash flows and ensures companies don't face liquidity shock at year-end.

### Who Must Pay Advance Tax

• Any company (or individual) with estimated tax liability exceeding **INR 10,000** after TDS credits
• Presumptive taxpayers under Section 44AD (turnover below INR 2 crore): single instalment by 15 March
• Senior citizens (60+) without business income: exempt from advance tax

### Instalment Schedule

| Instalment | Due Date | Cumulative % of Annual Tax | |------------|----------|----------------------------| | 1st | 15 June | 15% | | 2nd | 15 September | 45% | | 3rd | 15 December | 75% | | 4th | 15 March | 100% |

### Step-by-Step Calculation

Step 1: Estimate annual income

For a company mid-year, estimate: - Revenue received to date + expected revenue for the remainder of the year - Less estimated deductible expenses - Less depreciation (IT Act rates, not Companies Act) = Estimated net profit

Step 2: Apply tax rate

For a company under Section 115BAA: - Base tax = Estimated net profit x 22% - Surcharge = Base tax x 10% - Cess = (Base tax + Surcharge) x 4% - Total estimated tax = Base tax + Surcharge + Cess (~25.17% effective rate)

Step 3: Deduct TDS credits

Check Form 26AS or AIS on the Income Tax portal to see TDS already deducted by customers on your income. This reduces your advance tax obligation.

Net advance tax due = Total estimated tax - TDS already deducted

Step 4: Calculate each instalment

| Instalment | Cumulative % | Amount Due | |------------|-------------|------------| | By 15 June | 15% | Net advance tax x 15% | | By 15 September | 45% | Net advance tax x 45% (less what was paid in June) | | By 15 December | 75% | Net advance tax x 75% (less previous payments) | | By 15 March | 100% | Remaining balance |

### Worked Example

Company with estimated annual profit of INR 50 lakh under Section 115BAA:

Total estimated tax = INR 50 lakh x 25.17% = INR 12.585 lakh TDS credits expected = INR 2 lakh (from clients deducting TDS on service fees) Net advance tax = INR 10.585 lakh

| Instalment | Cumulative | Paid This Quarter | |------------|-----------|-------------------| | By 15 June | INR 1.59 lakh (15%) | INR 1.59 lakh | | By 15 Sep | INR 4.76 lakh (45%) | INR 3.17 lakh | | By 15 Dec | INR 7.94 lakh (75%) | INR 3.18 lakh | | By 15 Mar | INR 10.585 lakh (100%) | INR 2.64 lakh |

### How to Pay (Challan 280)

• Visit https://www.incometax.gov.in → Pay Taxes Online → Challan 280 (ITNS 280)
• Select Type of Payment: **Code 100 (Advance Tax)**
• Enter the correct **Assessment Year** (FY 2025-26 = AY 2026-27)
• Enter company PAN and other details
• Pay via net banking or NEFT/RTGS
• Save the BSR code, challan serial number, and date of deposit as evidence

Critical: The Assessment Year on Challan 280 must be one year ahead of the financial year (FY 2025-26 → AY 2026-27). Wrong AY = credit goes to the wrong year, requires a correction application.

### Interest for Default

Section 234C — Instalment default: If any instalment is short (cumulative payment less than the required cumulative percentage), interest at 1% per month for 3 months is charged on the shortfall. For the March instalment, interest is for 1 month only.

Section 234B — Overall advance tax shortfall: If total advance tax paid by 31 March is less than 90% of the assessed tax, interest at 1% per month is charged from 1 April of the AY until the date of self-assessment (filing of ITR-6 with payment).

Section 234A — Late filing: If ITR-6 is filed after the due date (31 October/30 November), interest at 1% per month on the outstanding tax from the due date.

### If Profit Is Hard to Estimate

Many businesses, especially service companies with uneven revenue, find it difficult to accurately estimate profits at each instalment date. The IT Act allows revisions — you can pay more in later instalments to catch up. However, Section 234C will charge interest on early instalment shortfalls even if you catch up later. The safest approach: if in doubt, slightly overpay in Q1 and Q2 to avoid any shortfall interest.