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Direct Tax Laws and International Taxation · Collection, Recovery and Refund of Tax

Advance Payment of Tax: Instalments, Due Dates and Interest

Updated 11 October 2026 · Fact-checked

Advance tax is tax you pay during the year on your estimated current income, in instalments, instead of waiting for the return. Under sections 406 and 408 you pay 15%, 45%, 75% and 100% cumulatively by 15 June, 15 September, 15 December and 15 March. Section 425 charges interest on shortfalls.

Understand Advance Payment of Tax

Tax is meant to be collected as income is earned. Tax deducted at source does this for some income. For the rest, the Act asks you to estimate your current income and pay the tax on it in instalments during the financial year. This is advance tax.

Section 406 says every person liable to pay advance tax under section 404 must pay it on their own accord, on the estimated current income (the "specified sum"), by each due date in section 408. You may raise or lower the later instalments if your estimate changes. Section 407 is the other route: where a person has been regularly assessed, the Assessing Officer can order them in writing to pay advance tax. That order must be passed by the last day of February of the financial year, followed by a demand notice under section 289.

Section 408 sets four instalments. The percentages are cumulative: by 15 June at least 15%, by 15 September at least 45%, by 15 December at least 75%, and by 15 March the whole amount. Each instalment is the cumulative percentage less what you have already paid. A taxpayer who declares profits under section 58(2) (Table Sl. No. 1 or 3) pays the whole advance tax in one go by 15 March. Amounts paid up to 31 March count as advance tax of that financial year.

If you fall short, section 425 charges interest. It works on the "tax due on the returned income", meaning tax on the total income in your return, reduced by TDS/TCS and the foreign tax and other reliefs listed in section 425(5). Interest is on the shortfall at each date, so a shortfall can attract interest more than once. Section 425(2) gives a safe harbour for the first two instalments, and section 425(4) protects shortfalls caused by certain unforeseen income.

The supplied text does not give an exemption rule for senior citizens or a definition of who is liable under section 404. Do not quote a senior citizen exemption or a tax threshold with a section number unless you have checked it in the Act. For presumptive taxpayers, only the section 58(2) (Table Sl. No. 1 or 3) rule above is in the text.

Key rules to remember

Instalment schedule (section 408(1))
15 June: ≥ 15%; 15 September: ≥ 45%; 15 December: ≥ 75%; 15 March: 100% of advance tax (all cumulative, less earlier payments)
Each instalment payable = cumulative % × advance tax − amounts already paid.
Presumptive taxpayer (section 408(2))
Whole advance tax on or before 15 March
Applies to an assessee declaring profits under section 58(2) (Table Sl. No. 1 or 3).
Tax due on returned income (section 425(5))
Tax on total income in the return − TDS/TCS − reliefs under sections 157, 159(1), 159(2), 160 − tax credits in 425(5)(f)
This is the base for all interest calculations.
Interest on shortfall (section 425(1))
Shortfall at 15 June, 15 Sept, 15 Dec: 3% each. Shortfall at 15 March: 1%
Benchmarks on returned income are 15%, 45%, 75%, 100%. Shortfall = benchmark − advance tax paid by that date.
No-interest safe harbour (section 425(2))
Paid by 15 June ≥ 12% and by 15 September ≥ 36% of tax due on returned income
Protects only the June and September instalments. It does not protect December or March.
Presumptive assessee interest (section 425(3))
1% simple interest on shortfall from tax due on returned income
For assessees under section 58(2) (Table Sl. No. 1 or 3), measured against payment by 15 March.
Exclusion for unforeseen income (section 425(4))
No interest on shortfall due to under-estimating capital gains, income under section 2(49)(n), first-time business profits or dividend, if the tax is paid in full in the remaining instalments or by 31 March
Both conditions must be met. Dividend excludes sub-clause (e) of section 2(40).

How to solve Advance Payment of Tax questions

Use this order for any advance tax question, whether it asks for instalments or interest.

  1. 1Identify the assessee: normal, or one declaring profits under section 58(2) (Table Sl. No. 1 or 3). This decides the instalment pattern.
  2. 2Compute the tax due on the returned income and deduct TDS/TCS and the reliefs in section 425(5).
  3. 3Set the cumulative benchmarks: 15%, 45%, 75% and 100% of that figure.
  4. 4Subtract advance tax actually paid by each date to get the shortfall at each date.
  5. 5Check the safe harbour: 12% by 15 June and 36% by 15 September. If met, no interest for that instalment.
  6. 6Check section 425(4): remove shortfall caused by capital gains, dividend, first-time business profits or income under section 2(49)(n), if the tax was paid later as required.
  7. 7Apply 3% to each of the first three shortfalls and 1% to the March shortfall, then add up.
  8. 8State the answer clearly and note any assumption, such as the period of interest.

Quickest way: Four-line shortfall table

When to use it: Use for numerical questions on interest for deferment when the tax due and payments by each date are given.

  1. Write the four dates in a column with benchmarks 15%, 45%, 75%, 100% of tax due on returned income.
  2. Write cumulative payments beside each date.
  3. Write shortfall for each date and mark any date saved by the 12% or 36% test.
  4. Multiply the remaining shortfalls by 3%, 3%, 3% and 1% and add.

Common mistakes in Advance Payment of Tax

  • Taking 15% of tax on total income without deducting TDS.

    Students forget that the base is the tax due on returned income, which is net of TDS/TCS and reliefs.

    Fix: Always compute the net figure under section 425(5) first.

  • Treating instalments as separate 15%, 45%, 75% amounts.

    The percentages look like per-instalment figures.

    Fix: They are cumulative. The 15 September payment is 45% less what was already paid.

  • Applying the 12% and 36% safe harbour to December or March.

    Students generalise the relief to all dates.

    Fix: Section 425(2) covers only 15 June and 15 September.

  • Charging 3% at the March instalment.

    Three dates carry 3%, so the pattern is assumed to continue.

    Fix: The March shortfall carries 1%.

  • Charging interest on a shortfall caused by unforeseen capital gains.

    The relief in section 425(4) is forgotten.

    Fix: If the tax on such income is paid in full in a remaining instalment or by 31 March, no interest is payable on that part.

  • Quoting a senior citizen exemption with a section number from memory.

    Old rules from the 1961 Act are recalled.

    Fix: Quote only rules you have checked in the 2025 Act, and use its section numbers.

Worked examples

Example 1

For tax year 2026-27, the tax due on the returned income of Mr. Rao, a normal assessee, is ₹2,00,000 after TDS and reliefs. He paid advance tax of ₹20,000 by 15 June, ₹80,000 cumulative by 15 September, ₹1,40,000 cumulative by 15 December and ₹1,70,000 by 15 March. Compute the interest under section 425(1). Ignore section 425(4).

Show the solution
  1. 15 June: benchmark 15% × ₹2,00,000 = ₹30,000. Paid ₹20,000. Shortfall ₹10,000.
  2. Safe harbour: 12% × ₹2,00,000 = ₹24,000. Paid ₹20,000 is less, so interest applies: 3% × ₹10,000 = ₹300.
  3. 15 September: benchmark 45% = ₹90,000. Paid ₹80,000. Shortfall ₹10,000.
  4. Safe harbour: 36% = ₹72,000. Paid ₹80,000 is more, so no interest.
  5. 15 December: benchmark 75% = ₹1,50,000. Paid ₹1,40,000. Shortfall ₹10,000. Interest 3% × ₹10,000 = ₹300.
  6. 15 March: benchmark 100% = ₹2,00,000. Paid ₹1,70,000. Shortfall ₹30,000. Interest 1% × ₹30,000 = ₹300.
  7. Total interest = ₹300 + ₹0 + ₹300 + ₹300 = ₹900.

Answer: Interest under section 425(1) is ₹900.

Example 2

Priya Textiles (a normal assessee) estimated advance tax at ₹4,00,000 and paid ₹60,000 by 15 June, ₹1,80,000 cumulative by 15 September, ₹3,00,000 cumulative by 15 December and ₹4,00,000 by 15 March. The tax due on returned income is ₹5,00,000, because ₹1,00,000 extra tax arose on capital gains from a sale of land on 20 February. She paid the tax on those gains by 15 March. Is interest payable?

Show the solution
  1. Benchmarks on ₹5,00,000: 15 June ₹75,000; 15 September ₹2,25,000; 15 December ₹3,75,000; 15 March ₹5,00,000.
  2. Shortfalls as computed: June ₹15,000; September ₹45,000; December ₹75,000; March ₹1,00,000.
  3. Section 425(4): the shortfall is due to failure to estimate capital gains, which arose in February. The tax on them (₹1,00,000) was paid in full by 15 March, the remaining instalment.
  4. So the shortfall caused by the capital gains is not subject to interest. The ₹1,00,000 tax on gains is removed from the tax due for each date.
  5. Adjusted tax due is ₹4,00,000. Benchmarks: June ₹60,000; September ₹1,80,000; December ₹3,00,000; March ₹4,00,000.
  6. Payments equal each benchmark, so shortfall is nil at every date.
  7. No interest is payable.

Answer: No interest is payable under section 425, as section 425(4) applies to the shortfall from capital gains.

Exam tips

  • Draw the date-wise table first. Marks are given for each shortfall and rate, even if the total slips.
  • Write the net tax due on returned income, with TDS deducted, as your first line.
  • Test the 12% and 36% limits explicitly for June and September.
  • For theory, cite the section: 406 own accord, 407 AO order, 408 instalments, 425 interest.
  • When a question mentions capital gains or dividend arriving late, check section 425(4) before computing interest.

Practice questions from Collection, Recovery and Refund of Tax

Advance Payment of Tax in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Advance Payment of Tax: frequently asked questions

What are the advance tax due dates under the Income-tax Act, 2025?

Section 408 gives 15 June, 15 September, 15 December and 15 March. The cumulative amounts are at least 15%, 45%, 75% and 100% of the advance tax.

How is interest on shortfall in advance tax calculated?

Under section 425(1), work out the shortfall against 15%, 45%, 75% and 100% of the tax due on returned income at each date. Charge 3% on the first three shortfalls and 1% on the March shortfall. Apply the 12% and 36% safe harbour for June and September.

When is a presumptive taxpayer required to pay advance tax?

An assessee declaring profits under section 58(2) (Table Sl. No. 1 or 3) pays the whole advance tax by 15 March under section 408(2). If there is a shortfall, section 425(3) charges 1% simple interest on it.

Can the Assessing Officer require advance tax to be paid?

Yes. Under section 407, for a person already regularly assessed, the AO can pass a written order specifying the instalments. It must be passed by the last day of February of the financial year and be followed by a demand notice under section 289.