The September instalment is important for taxpayers whose income is not fully covered by TDS or TCS, including those earning income from sources such as interest, rent, business or profession and capital gains.
What is advance tax?
Advance tax is income tax paid in instalments during the year based on the taxpayer’s estimated income and tax liability. It is essentially a system of paying tax as income is earned.
For taxpayers following the regular instalment schedule, advance tax is payable in four stages. By June 15, at least 15% of the estimated annual tax liability should have been paid. By September 15, the cumulative payment should reach 45%, followed by 75% by December 15 and 100% by March 15.
Therefore, the September 15 deadline does not mean taxpayers have to pay 45% of their tax liability again. The June payment is adjusted against the cumulative 45% requirement.
Who needs to pay advance tax?
Advance tax generally applies when the taxpayer’s estimated tax liability for the year is ₹10,000 or more, after considering taxes already deducted or collected.
The requirement can apply to individuals earning income from a variety of sources. It is not restricted to business owners or self-employed professionals.
For example, a salaried individual may already have TDS deducted by their employer but could still have an additional advance-tax liability if they earn significant interest income, rental income or capital gains and the TDS does not fully cover their final tax liability.
There is an exception for resident senior citizens who do not have income from a business or profession. They are generally not required to pay advance tax.
How much has to be paid by September 15?
Taxpayers first need to estimate their total income and tax liability for Tax Year 2026-27. They then need to factor in TDS, TCS and other applicable tax credits.
For taxpayers under the regular advance-tax schedule, the cumulative payment by September 15 should generally be 45% of the estimated advance-tax liability.
What about capital gains and other irregular income?
Calculating advance tax can be more complicated for taxpayers whose income varies during the year.
Capital gains are one such example. A taxpayer may sell shares or other capital assets and incur a tax liability after the June instalment has already been paid. Similarly, business owners, professionals and freelancers may see their income change during the year.
In such cases, taxpayers can revise their estimate of income and tax liability and adjust subsequent advance-tax instalments accordingly.
What happens if advance tax is not paid?
Failing to pay the required advance tax, or paying less than the prescribed amount, can lead to interest liability for deferment or short payment of advance tax.
The final tax payable at the end of the year may therefore be higher than expected if the taxpayer has not made the required advance-tax payments during the year.
What should taxpayers check before September 15?
Taxpayers should review their income earned so far and estimate their income for the rest of the year. They should also check the TDS and TCS already credited or expected to be credited against their tax liability.
Those with income from interest, rent, capital gains, business, profession or other sources where tax has not been fully deducted at source should particularly check whether they have an advance-tax liability.
