Calculation of Advance Tax

Calculation of Advance Tax for FY 2026-27: A Step-by-Step Guide

Advance tax is the income-tax equivalent of a pay-as-you-earn system. Under Sections 207–211 of the Income-tax Act, 1961, any taxpayer whose estimated tax liability for the year — after deducting TDS and TCS — exceeds Rs. 10,000 must pay that liability in four quarterly instalments rather than in one lump sum at year end. For FY 2026-27 (AY 2027-28), with the new tax regime now the statutory default and the Annual Information Statement (AIS) giving the Income Tax Department near-real-time visibility into your interest, dividends, and capital gains, miscalculating or missing an instalment is a fast track to interest notices under Sections 234B and 234C.

Who Must Pay Advance Tax — and Who Is Exempt

The obligation is broader than most people assume. The following categories are covered:

• Salaried employees whose non-salary income (bank interest, house-property rent, freelance fees, capital gains from mutual funds or equity) pushes the net tax liability above Rs. 10,000 after their employer's TDS.
• Self-employed professionals — doctors, lawyers, architects, consultants — not opting for Section 44ADA presumptive scheme.
• Business owners not opting for Section 44AD presumptive scheme.
• Companies, LLPs, and partnership firms — without exception, regardless of income level.
• Non-resident Indians (NRIs) on India-sourced income not fully covered by TDS.

Who is exempt:

• Senior citizens aged 60 years or above who do not have income from business or profession. They may pay their entire tax liability as self-assessment tax at the time of filing the ITR, without any Section 234B or 234C interest. Note carefully: if a senior citizen runs a proprietorship or has professional income, this exemption does not apply.
• Taxpayers whose net tax liability (after TDS/TCS) is Rs. 10,000 or less for the full year.

A common trap: a salaried person who earns Rs. 1.5 lakh in fixed-deposit interest and Rs. 60,000 in equity-fund dividends often assumes their employer's TDS covers everything. It doesn't. Run the numbers before 15 June every year.

Section 211 Due Dates: The Four Quarterly Instalments for FY 2026-27

Section 211 mandates cumulative targets, not incremental ones. Each due date requires you to have paid a minimum percentage of your total estimated tax liability for the year (not just the quarter's share).

Why "cumulative" matters: If you pay nothing by 15 June and then pay 45% by 15 September, the September instalment is technically on time — but the June instalment is not, and Section 234C interest accrues on the June shortfall for three months. Many taxpayers misread the schedule as four equal 25% tranches. It is not.

If a due date falls on a Sunday or bank holiday, pay on the preceding working day to be safe. The portal does accept payments on the due date itself until midnight, but processing delays at the bank's gateway have caused taxpayers to miss the cut-off. Don't leave it to the last hour.

Step-by-Step: How to Calculate Your Advance Tax Liability

Step 1 — Estimate Gross Total Income for the Full Year

Project income from every head:

• Salary: Use your CTC letter or Form 16 from the previous year as a baseline, adjusted for any hike.
• House property: Annual rent receivable minus municipal tax; apply the 30% standard deduction on net annual value.
• Business / profession: Estimated net profit for the year.
• Capital gains: Check your broker's consolidated account statement (CAS) for booked gains to date; project likely gains on planned redemptions.
• Other sources: Fixed-deposit interest (check AIS from the e-Filing portal — banks report to the department in real time), dividend income, savings-account interest above Rs. 10,000.

Do not wait until March to total this up. Pull your AIS on the e-Filing portal under Services → Annual Information Statement at least once before each instalment due date. Banks, mutual-fund houses, and companies are submitting SFT data quarterly; your AIS reflects it faster than Form 26AS did under the old system.

Step 2 — Apply Chapter VI-A Deductions (Old Regime Only)

If you are in the old tax regime, subtract eligible deductions: Section 80C (up to Rs. 1.5 lakh), 80D (health insurance premia), 80TTA/80TTB (savings interest), and others. Arrive at your taxable income.

If you are in the new tax regime (the default for FY 2026-27), skip this step entirely — Chapter VI-A deductions are not available, except the standard deduction of Rs. 75,000 for salaried individuals and pensioners, and the employer's NPS contribution under Section 80CCD(2).

Step 3 — Compute Tax Using the Applicable Slab Rates

Apply the slab rates to your taxable income (see the dedicated section below for FY 2026-27 slabs).

Step 4 — Add Health-and-Education Cess and Surcharge

Add 4% health-and-education cess on the base tax computed in Step 3.

Add surcharge if applicable:

• 10% surcharge where total income exceeds Rs. 50 lakh (old and new regime).
• 15% where total income exceeds Rs. 1 crore.
• 25% where total income exceeds Rs. 2 crore (new regime cap; old regime goes to 37% for income above Rs. 5 crore, but the new regime caps surcharge at 25%).

Cess is calculated on (tax + surcharge), not on income directly.

Step 5 — Subtract TDS, TCS, and Earlier Advance-Tax Payments

The result of Steps 3–4 is your gross tax liability for the year. Subtract:

• TDS already deducted by your employer, bank, tenant, or any other deductor (verify from AIS/Form 26AS).
• TCS collected by sellers of goods/services.
• Advance tax already paid in earlier instalments of the same financial year.

The remaining balance is your net advance-tax liability, against which you apply the Section 211 cumulative percentages.

New Tax Regime Slab Rates for AY 2027-28

The new tax regime is the statutory default for FY 2026-27. You must explicitly opt out to use the old regime.

Section 87A rebate: Under the new regime, a rebate of up to Rs. 25,000 is available if total income does not exceed Rs. 7,00,000. This effectively makes tax nil for new-regime taxpayers with income up to Rs. 7 lakh, but it does not eliminate the advance-tax obligation if you have volatile income that might cross Rs. 7 lakh mid-year. Compute your advance tax on projected income; revisit at each instalment.

Worked Example: Salaried Professional with Side Income — New Regime

Facts: You are a marketing manager. Your salary for FY 2026-27 is Rs. 14 lakh. You also earn Rs. 1.5 lakh in fixed-deposit interest and Rs. 50,000 in equity-fund dividends. You have opted for the new tax regime. Your employer deducts TDS of Rs. 40,000 on salary over the year.

Step 1 — Estimated gross total income:

• Salary (after Rs. 75,000 standard deduction): Rs. 13,25,000
• FD interest: Rs. 1,50,000
• Dividends: Rs. 50,000
• Total taxable income: Rs. 15,25,000

(For simplicity, we round down to Rs. 15,00,000 to land exactly on the slab boundary.)

Step 2 — Tax on Rs. 15,00,000 (new regime):

Step 3 — Add 4% cess: Rs. 1,40,000 × 4% = Rs. 5,600. Total gross tax = Rs. 1,45,600.

Step 4 — Subtract TDS: Rs. 1,45,600 − Rs. 40,000 = Rs. 1,05,600 advance-tax liability.

Step 5 — Instalment schedule:

Re-estimation tip for December: By December you know your actual salary, most FD interest credits, and equity-fund redemptions for the year. Revise the calculation before 15 December — this is the one instalment where an upward revision truly matters, because the September window is already closed.

Presumptive Taxation Under Sections 44AD and 44ADA: Special Rules

Taxpayers who opt for the presumptive scheme under Section 44AD (small businesses with turnover up to Rs. 3 crore / Rs. 75 lakh for digital receipts) or Section 44ADA (specified professionals with gross receipts up to Rs. 75 lakh) get a simplified advance-tax structure: they pay 100% of their estimated tax in a single instalment by 15 March.

There are no June, September, or December instalments for these taxpayers. A 44AD/44ADA taxpayer who fails to pay by 15 March is liable to interest under Section 234C for one month on the entire shortfall — not three months as for regular taxpayers.

Important caveat: If a presumptive taxpayer has other income (e.g., rent or capital gains) alongside business income declared under 44AD, the combined tax on all income is treated as one advance-tax liability payable by 15 March. They still escape the quarterly instalments, but they must estimate all heads correctly.

Watch out: If a business taxpayer opts out of 44AD before FY 2026-27, they lose eligibility for five consecutive years and revert to the normal four-instalment schedule. This is a common mid-year surprise.

How to Pay: Challan ITNS 280 Step by Step

Payment of advance tax is made via Challan ITNS 280 (commonly referred to as Challan 280). Here is the exact sequence on the Income Tax e-Filing portal (incometax.gov.in) as of FY 2026-27:

1. Log in to the e-Filing portal and navigate to e-Pay Tax under the Quick Links section on the dashboard.
2. Enter your PAN, confirm with your mobile OTP, and select Proceed.
3. Under Tax Payment, select Income Tax.
4. On the next screen, select (100) Advance Tax as the type of payment. Do not select Self-Assessment Tax (300) — it is a different code and carries different treatment in the ITR.
5. Enter Assessment Year 2027-28 (not the financial year — this is a common error).
6. Enter the amount in the appropriate heads. For most salaried/professional taxpayers, the entire amount goes into the Others column. Capital gains go into Capital Gains if your software splits it, but most individuals enter the full amount under Others.
7. Choose your payment mode: Net Banking (via 30+ authorised banks), UPI, Debit Card, or RTGS/NEFT for larger amounts.
8. Complete payment. Immediately download and save the BSR code, challan serial number, and date of deposit shown on the counterfoil. You will enter these in Schedule IT (tax paid) of your ITR.
9. Within 2–3 days, verify the credit appears in Form 26AS and your AIS. If it does not, the challan may need to be rectified at the Assessing Officer's office — the sooner you catch this, the easier the fix.

Offline route: If paying at a bank counter, use the physical Challan 280 form, fill in the same codes, and collect the stamped counterfoil. Ensure the bank teller enters the correct Assessment Year — AY 2027-28, not 2026-27.

Interest for Default: Sections 234B and 234C with Numbers

Section 234C — Instalment Shortfall Interest

Section 234C applies when the cumulative tax paid by a due date falls short of the prescribed percentage of your assessed tax (or estimated total tax). The interest rate is 1% per month or part of a month:

• Shortfall at 15 June: interest for 3 months.
• Shortfall at 15 September: interest for 3 months.
• Shortfall at 15 December: interest for 3 months.
• Shortfall at 15 March: interest for 1 month.

Example: Using the worked example above, suppose you pay nothing by 15 June 2026. The required payment was Rs. 15,840. Interest = Rs. 15,840 × 1% × 3 = Rs. 476. That is small on its own, but if you pay nothing across all three quarterly deadlines and settle on 31 March:

• June shortfall interest: Rs. 15,840 × 3% = Rs. 475
• September shortfall interest: Rs. 47,520 × 3% = Rs. 1,426
• December shortfall interest: Rs. 79,200 × 3% = Rs. 2,376
• March shortfall interest: Rs. 1,05,600 × 1% = Rs. 1,056
• Total 234C interest: Rs. 5,333 for a Rs. 1 lakh advance-tax obligation — roughly 5% of your annual bill paid for a few months of delay.

Section 234B — Less Than 90% Advance Tax Paid

Section 234B kicks in if you have not paid at least 90% of your assessed tax as advance tax by 31 March. The interest is 1% per month from 1 April of the assessment year (i.e., 1 April 2027) until the date of actual payment or assessment, whichever is earlier.

Example: Assessed tax = Rs. 1,45,600. 90% threshold = Rs. 1,31,040. Suppose you paid only Rs. 1,00,000 as advance tax. Shortfall = Rs. 45,600. If you file your ITR and pay self-assessment tax on 31 July 2027 (4 months from April 2027): Interest = Rs. 45,600 × 1% × 4 = Rs. 1,824.

Both 234B and 234C interest is calculated by the income-tax system automatically and reflected in the intimation under Section 143(1) from CPC Bengaluru. Both are non-deductible expenses — you cannot claim them as a business expenditure.

Common Mistakes That Trigger Section 234 Notices

1. Using last year's TDS credit as this year's estimate. If your employer's TDS jumps because of a bonus or hike, the proportional estimate can look fine on paper but miss the actual liability significantly. Pull the actual TDS certificate mid-year.

2. Forgetting capital gains from mutual-fund switches. Switching between funds is a redemption event. Each switch generates taxable capital gains that appear in your AIS within weeks. Many investors discover a six-figure capital-gains liability only when preparing their ITR in July — by then, all four deadlines are past.

3. Entering AY 2026-27 instead of AY 2027-28 in Challan 280. The CPC system cannot automatically credit a mis-year payment to the correct year. You must file a challan correction request through the e-Filing portal. The process works, but it takes weeks and creates avoidable stress.

4. Treating TDS on FD interest as the complete tax. Banks deduct TDS at 10% (or 20% without PAN). If you are in the 30% bracket, the remaining 20% must come via advance tax. FD interest is frequently under-reported in advance-tax estimates.

5. Missing the March 15 deadline because banks are busy. The second half of March sees high volume on the tax-payment gateways. Initiate your final instalment by 12 or 13 March at the latest. NEFT/RTGS payments made after the NEFT cut-off on 15 March (typically 4:30 PM for most banks) will be credited the next day — which is after the deadline.

6. Not revising the estimate downward. If your income falls — a freelance project cancelled, a rental property becoming vacant — you can reduce your September and December instalments accordingly. There is no penalty for paying less than originally projected, provided you meet the cumulative percentages of actual final tax liability. Revise proactively; do not over-pay unnecessarily.

Key Takeaways

• Any taxpayer with net tax liability exceeding Rs. 10,000 after TDS must pay advance tax in four instalments under Section 211; senior citizens without business income are the only major exemption.
• The instalment targets are cumulative — 15%, 45%, 75%, 100% — not quarter-by-quarter slices; treating them as 15%, 30%, 30%, 25% is a common and costly misreading.
• Under the new tax regime (the FY 2026-27 default), Section 87A rebate makes tax nil for incomes up to Rs. 7 lakh, but if your projected income is volatile, estimate conservatively and revise downward later.
• Presumptive-scheme taxpayers under Sections 44AD and 44ADA pay 100% by 15 March in a single instalment, with 234C interest capped at one month if they miss it.
• Pay via Challan ITNS 280 on the e-Filing portal, code (100) Advance Tax, Assessment Year 2027-28; save the BSR code and serial number immediately.
• Section 234C interest runs at 1% per month for 3 months on each quarterly shortfall; Section 234B runs at 1% per month from 1 April 2027 if total advance tax paid is below 90% of assessed tax.
• Review your AIS before each instalment — capital gains from fund switches, dividend credits, and FD interest are all visible there and often missed in initial estimates.