Introduction
Advance tax is one of the most important compliance requirements under the Income Tax Act. It ensures that taxpayers pay their dues in instalments as income is earned, rather than waiting until the end of the financial year. This “pay-as-you-earn” system prevents a heavy burden at year-end and helps the government maintain steady revenue inflows.
For Financial Year (FY) 2025-26, corresponding to Assessment Year (AY) 2026-27, advance tax assumes greater importance because of the new slab rates and enhanced rebate limits. Whether you are a salaried employee, a professional, or a business owner, understanding these changes is crucial to avoid interest liability and manage cash flow effectively.
AY 2026-27 – Key Changes to Remember
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New Income Tax Slabs under Section 115BAC
The new regime slab rates have been revised as follows:
| Income Range | Tax Rate |
| 0 – 4 Lakhs | Nil |
| 4 – 8 Lakhs | 5% |
| 8 – 12 Lakhs | 10% |
| 12 – 16 Lakhs | 15% |
| 16 – 20 Lakhs | 20% |
| 20 – 24 Lakhs | 25% |
| Above 24 Lakhs | 30% |
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Enhanced Section 87A Rebate
The rebate threshold under the new regime has been increased from ₹7,00,000 to ₹12,00,000. Taxpayers with income up to ₹12 lakh (excluding special rate incomes like capital gains) can effectively pay zero tax. Marginal relief is available for those slightly above ₹12 lakh.
Points to Remember While Paying Advance Tax
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Who Needs to Pay?
- Any taxpayer with tax liability exceeding ₹10,000 in a financial year.
- Applies to individuals, firms, companies, and professionals.
- Senior citizens (60+) without business income are exempt.
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Instalment Schedule
Advance tax is payable in four instalments:
- 15% by 15th June 2025
- 45% by 15th September 2025
- 75% by 15th December 2025
- 100% by 15th March 2026
For presumptive taxpayers under Sections 44AD/44ADA, the entire liability is payable by 15th March 2026.
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Estimate Income Carefully
Include all sources:
- Salary (including bonuses and incentives)
- Business/professional income
- Rental income
- Capital gains
- Interest/dividends
👉 Additional Note: If you have switched jobs during the year, ensure that salary from your previous employer is also considered in your advance tax calculation. If not disclosed to the current employer, this income may be missed in TDS computation, leading to shortfall and interest liability.
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Adjust for TDS/TCS
Deduct taxes already withheld at source to avoid double payment. With revised thresholds, fewer deductions may occur, so advance tax liability could rise.
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Capital Gains & Windfall Income
If capital gains or windfall income (lottery, horse race winnings) arise mid-year, pay advance tax in the next instalment to avoid interest under Section 234C.
👉 Additional Note: Capital gains tax should be calculated considering the new slab rates and applicable surcharge. Ensure you apply the correct rate for short-term and long-term gains, as these are taxed differently from regular income.
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Housing Loan Interest Deduction
Obtain a provisional interest certificate from your bank for housing loan deductions. Compare it with actual payments made during the year to ensure accuracy in claiming deductions under Section 24(b).
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Choice of Tax Regime
Taxpayers with business income must choose their regime (old vs. new) wisely. Once opted, switching is restricted under law. Check eligibility before making the choice, as this impacts advance tax liability significantly.
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Surcharge Rates
Verify applicable surcharge rates carefully, especially for high-income taxpayers. Misapplication can lead to underpayment and subsequent interest.
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Corporate Taxpayers – MAT
Companies must also check Minimum Alternate Tax (MAT) calculations to ensure compliance. Advance tax liability should be computed considering both normal provisions and MAT, whichever is higher.
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Brought Forward Loss Adjustment
Before finalizing advance tax, adjust for brought forward business losses, depreciation, and capital losses. This reduces taxable income and prevents excess payment.
Practical Tips for Smooth Compliance
- Quarterly Review: Reassess income projections every quarter.
- Use Online Calculators: Simplify estimation with official calculators.
- Plan Cash Flow: Align payments with inflows to avoid liquidity crunch.
- Professional Guidance: Seek advice for complex income streams.
- Stay Updated: Monitor CBDT notifications and Budget changes.
Conclusion
Advance tax is not just a compliance requirement—it’s a proactive financial discipline. For FY 2025-26 (AY 2026-27), taxpayers must pay close attention to the new slab rates, enhanced rebate limits, revised TDS thresholds, and extended updated return timelines.
By estimating income carefully, including salary from previous employers, considering capital gains under new rates, checking housing loan deductions, and applying surcharge/MAT provisions correctly, you can avoid penalties and maintain peace of mind.
Advance tax spreads your liability across the year, ensures compliance, and reflects responsible financial planning. In short, timely advance tax payments save you from unnecessary interest, penalties, and stress—while keeping you firmly on the right side of the law.
BLOG BY – MITTAL & CO.