Advance tax is the income tax paid in instalments during the financial year in which the income is earned, rather than as a lump sum after the year ends. Under Indian law, the liability to pay advance tax arises under Section 207 of the Income Tax Act, 1961, and applies to every person whose estimated tax liability for the year is Rs 10,000 or more, after accounting for TDS and TCS credits.
Legal definition
The Income Tax Act, 1961 establishes the statutory framework for advance tax through Sections 207 to 211:
Section 207 — Liability for payment of advance tax: "Tax shall be payable in advance during any financial year, in accordance with the provisions of sections 208 to 219 (both inclusive), in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year."
Section 208 — Conditions of liability to pay advance tax: "Advance tax shall be payable during a financial year in every case where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this Chapter, is ten thousand rupees or more."
Section 209 — Computation of advance tax: Provides that the assessee shall estimate their current income and compute advance tax on the basis of rates in force for the financial year, after deducting the amount of income tax deductible or collectible at source during that year.
Senior citizens (aged 60 or above) who do not have income from business or profession are exempt from paying advance tax under the proviso to Section 207.
How courts have interpreted this term
Premier Automobiles Ltd. v. S.N. Shrivastava [(1968) 70 ITR 97 (SC)]
The Supreme Court examined the nature of the advance tax liability and its relationship with the assessment provisions. The Court held that Sections 207 and 208 impose the liability for payment of advance tax, while Sections 209, 210, and 212(3) determine the quantum of such liability. The Court clarified that the agent of a non-resident can be made liable for advance tax and that this does not violate the equality clause under Article 14 of the Constitution.
CIT v. Ogale Glass Works Ltd. [(1954) 25 ITR 529 (SC)]
The Supreme Court established that advance tax is merely a mode of collection of income tax and not a separate or distinct tax. The advance tax collected is adjusted against the final tax liability determined on regular assessment, and any excess is refundable to the assessee. This principle remains foundational to understanding that advance tax is part of the same income tax obligation, not an additional imposition.
Why this matters
Advance tax is the government's mechanism for ensuring a steady flow of revenue throughout the financial year, rather than waiting for taxpayers to file returns and pay taxes after the year concludes. This "pay-as-you-earn" system applies to all taxpayers — salaried individuals (where TDS does not fully cover the tax liability), self-employed professionals, businesses, and companies — whose estimated annual tax liability exceeds Rs 10,000.
The due dates for advance tax payment are prescribed under Section 211: 15% by 15 June, 45% by 15 September, 75% by 15 December, and 100% by 15 March. Failure to pay advance tax or shortfall in payment attracts interest under Section 234B (for non-payment or underpayment) and Section 234C (for deferment of instalments). Interest under Section 234B is charged at 1% per month on the shortfall from the date of assessment to the date of determination, while Section 234C imposes interest at 1% per month for each quarter of shortfall.
For practitioners, a common area of dispute involves the computation of advance tax liability when income is uncertain — particularly for businesses with fluctuating revenues, capital gains that are unpredictable, or professionals with irregular income streams. The Act provides that if a taxpayer receives income under the heads "Profits and gains of business or profession" or "Capital gains" for the first time, they need not pay advance tax in the first instalment but must adjust in subsequent instalments.
Related terms
Broader concepts:
Sibling concepts:
Related procedures:
Frequently asked questions
Who is required to pay advance tax in India?
Every person whose estimated tax liability for the financial year, after deducting TDS and TCS, is Rs 10,000 or more must pay advance tax under Section 208 of the Income Tax Act. This includes individuals, HUFs, firms, companies, and other assessees. However, resident senior citizens (aged 60 or above) who do not have income from business or profession are exempt under the proviso to Section 207.
What are the due dates for advance tax payment?
Under Section 211, advance tax is payable in four instalments: 15% by 15 June, 45% by 15 September, 75% by 15 December, and 100% by 15 March of the financial year. Assessees opting for the presumptive taxation scheme under Section 44AD or 44ADA must pay the entire advance tax in a single instalment by 15 March.
What happens if advance tax is not paid on time?
Non-payment or underpayment of advance tax attracts interest under Section 234B at 1% per month (simple interest) on the amount of shortfall from April of the assessment year until the date of determination of income under regular assessment. Additionally, deferment of individual instalments attracts interest under Section 234C at 1% per month for each quarter of shortfall.
Is advance tax applicable on capital gains?
Yes, capital gains are included in the computation of advance tax. However, since capital gains arise on specific transactions that may not be foreseeable, the Act provides that if capital gains or income under "Income from other sources" by way of winnings arise after the due date of any instalment, the entire amount of advance tax on such income is payable in the remaining instalments.
This entry is part of the Veritect Indian Legal Glossary, a comprehensive reference of Indian legal terminology grounded in statutory text and judicial interpretation.
Last updated: 2026-03-27. Veritect provides this content for informational purposes and does not constitute legal advice.