Advance tax for small businesses and professionals (Tax Year 2026–27): due dates, calculation and interest

Last verified: 27 October 2026, against the Income-tax Act, 2025 and current Income Tax Department guidance. Rates and provisions change by Finance Act and notification, so confirm the position for your facts before paying.

Many small business owners and freelancers earn income through the year and assume the income tax can be settled in one go when they file their return. For most, it cannot. The law expects the tax to be paid as the income is earned, in instalments, through advance tax.

Tax Year 2026-27 falls under the Income-tax Act, 2025, which replaces the older “assessment year” framework with the tax year concept. This guide uses the current terminology and section numbers, and shows the calculation transparently so you can apply it to your own figures. For the primary keyword in plain terms, this is advance tax for small businesses and professionals, explained for the current law.

 

What Is Advance Tax and Why Does It Matter?

How advance tax works

Advance tax is income tax paid during the tax year based on your estimated annual liability, so the government collects revenue through the year rather than only at return filing. It is the same income tax you would owe anyway, not a separate levy: you estimate your total taxable income, calculate the tax, subtract TDS and TCS credits, and pay the remaining amount in instalments.

Advance tax vs TDS vs self-assessment tax

These are three different ways of meeting the same annual liability, not three taxes on the same income. They stack as credits, they do not multiply.

 

Who Must Pay Advance Tax in Tax Year 2026-27?

The Rs 10,000 threshold

Section 403 of the Income-tax Act, 2025 charges advance tax on current income, and Section 404 sets the trigger: advance tax is payable where the estimated tax for the year is ₹10,000 or more after reducing expected TDS and TCS. The figure is estimated tax liability, not turnover and not gross receipts. A business with ₹50 lakh of revenue can owe no advance tax if expenses, deductions, and TDS bring the net below ₹10,000, while a freelancer with modest receipts and little TDS can owe a meaningful amount.

Which taxpayers may need to pay?

The obligation is not created by legal form; it is created by the estimated liability crossing the threshold. Sole proprietors, freelancers and consultants, independent professionals, partnership firms and LLPs, and companies all fall within scope if they cross it. What differs by taxpayer type is the computation and the applicable rates: individual slab rates, firm rates, and corporate rates are not interchangeable.

Who is exempt?

A resident senior citizen (aged 60 or above) who has no income chargeable under “Profits and Gains of Business or Profession” is generally not required to pay advance tax. The exemption is tied to the absence of business or professional income, not to age alone, so a 62-year-old running a consulting practice still has the obligation.

 

Advance Tax Due Dates for Tax Year 2026-27

Section 408 sets the schedule. The percentages are cumulative, not amounts for each quarter on their own.

How the instalment schedule works

Because the targets are cumulative, each date tops up the running total. On an estimated advance tax of ₹1,00,000:

What if an instalment date has already passed?

This guide is being read in late 2026, so the 15 June and 15 September instalments for Tax Year 2026-27 have already passed. If you have not been paying, assess your current estimated liability and the cumulative shortfall now, and clear it with the next instalment rather than waiting, because interest accrues on the gap.

Can you pay after 15 March?

Advance tax paid between 16 March and 31 March is still treated as advance tax for the year, but paying after 15 March does not undo a missed 15 March target, and interest under Section 425 can still apply for the instalment shortfall. The scheduled final instalment and a late top-up are not the same thing.

 

How to Calculate Advance Tax

The most common mistake is treating revenue as profit. A business collecting money is taxed on its taxable income, not its receipts, so the calculation runs in five steps.

Step 1: Estimate your total income

Add up income across all heads for the year: business or professional profit, any salary, interest, rent, capital gains, and other taxable income.

Step 2: Calculate taxable income

Apply allowable expenses, eligible deductions, and set-offs to reach taxable income. Accounting profit, turnover, and taxable income are not the same figure. Which deductions are available depends on the tax regime you choose, since the new regime allows fewer deductions than the old one.

Step 3: Calculate income tax

Apply the rates for your taxpayer type and regime, then add any surcharge (for higher incomes) and the 4% health and education cess, and reduce by any eligible rebate. Under the new regime for Tax Year 2026-27, the slab rates are: nil up to ₹4 lakh, 5% from ₹4 to 8 lakh, 10% from ₹8 to 12 lakh, 15% from ₹12 to 16 lakh, 20% from ₹16 to 20 lakh, 25% from ₹20 to 24 lakh, and 30% above ₹24 lakh, with a rebate that makes taxable income up to ₹12 lakh effectively tax-free. Confirm the current rates before relying on them.

Step 4: Subtract relevant TDS/TCS and other credits

Reduce the estimated tax by the TDS and TCS already deducted or collected, and any other eligible credits. What remains is your advance tax liability for the year.

Step 5: Calculate the instalments

Apply the cumulative percentages (15%, 45%, 75%, 100%) to that advance tax liability to get each instalment target.

The instalments on ₹60,960:

Firms and companies use different rates, so do not apply individual slab rates to a partnership firm or a private company; run each taxpayer type on its own rules.

 

Advance Tax for Freelancers and Professionals

How to estimate income when earnings vary

Irregular income makes estimation harder, not optional. Build a reasonable annual estimate from confirmed contracts, recurring retainers, completed and invoiced work, expected renewals, and recurring business expenses, and revise it as the year unfolds.

How TDS affects advance tax

Clients often deduct TDS on professional fees, which reduces the remaining advance tax but rarely eliminates it: if the total estimated tax exceeds the TDS, the balance is still payable as advance tax. The practical trap is over-relying on expected TDS. A client may deduct late, use an incorrect PAN, or report in a later quarter, so the credit may not appear in Form 26AS or the AIS when you expect it. Reconcile against the TDS actually credited rather than the TDS you assume.

What if you receive unexpected income?

If a large project or receipt lands mid-year, revise the annual estimate and adjust the remaining instalments to reflect the higher liability. The law expects you to reforecast, and the later instalments should carry the catch-up.

 

Advance Tax Under Presumptive Taxation

What is presumptive taxation?

Under the presumptive provisions (Section 58 of the Income-tax Act, 2025, covering the schemes previously known as 44AD, 44ADA, and 44AE), eligible taxpayers compute income at a prescribed percentage of turnover or gross receipts instead of maintaining detailed books and claiming actual expenses. It does not tax the whole turnover: an eligible business computes presumptive income at a prescribed percentage (for example 8%, or 6% for qualifying digital receipts), not at 100%.

Advance tax due date for eligible presumptive taxpayers

Under Section 408(2), a qualifying presumptive taxpayer pays 100% of the advance tax in a single instalment by 15 March, with no quarterly instalments. Paying even a little later, by 31 March, can still attract a short spell of Section 425 interest.

Worked example (illustrative)

An eligible professional under the new regime, figures rounded and excluding surcharge:

Regular vs presumptive schedule

Not every freelancer or business qualifies. Eligibility depends on the activity, the turnover or receipts thresholds, the digital-receipt conditions, and the filing history, and presumptive taxation is not automatically beneficial because it limits the ability to claim actual expenses. Verify the applicable scheme and thresholds before relying on it.

 

Interest on Advance Tax: Sections 424 and 425

Two different provisions with two different triggers, which is where most of the confusion starts. Both charge interest at 1% per month (or part of a month), and both can apply to the same taxpayer in the same year.

Section 424: interest for default

Section 424 (the provision that replaced Section 234B) applies when the total advance tax paid is less than 90% of the assessed tax. Interest runs at 1% per month on the shortfall, from 1 April after the tax year ends until the tax is paid or assessed.

Section 425: interest for deferment

Section 425 (which replaced Section 234C) applies when you miss a cumulative instalment target. Interest is 1% per month on the instalment shortfall, generally for three months per missed instalment and one month for the 15 March instalment. For the first two instalments, a tolerance applies: if you have paid at least 12% by 15 June and 36% by 15 September, no deferment interest arises for those instalments even though the targets are 15% and 45%.

Exceptions for certain income

For income that could not reasonably be estimated earlier, such as certain capital gains, dividends, or income from a business or profession started during the year, the law provides that if the advance tax on that income is paid in the instalment immediately following its receipt, deferment interest may not apply to it. This is a narrow relief with conditions, not a blanket exemption for every unexpected receipt.

 

How to Pay Advance Tax Online

Step-by-step payment process

Pay through the official Income Tax e-Filing Portal using e-Pay Tax. In outline: sign in or enter your PAN, open e-Pay Tax, select the correct tax year and the advance tax payment category, enter the amount, complete the payment by net banking, UPI, or another available method, and save the challan and the CIN. Confirm the current screens on the portal, since the interface changes.

How to verify the payment

A payment receipt is not the same as a correctly credited payment. Selecting the wrong tax year or payment category is a common mistake that creates reconciliation work, so retain the bank debit proof and the challan acknowledgement until the credit appears against your PAN in Form 26AS, and match the challan to your records.

 

Accounting Entries for Advance Tax

How to record advance tax paid

For a company, advance tax paid is recorded as an asset: debit Advance Tax (asset), credit Bank, and it is later set against the final tax liability. The exact entry depends on the entity and its chart of accounts.

Is advance tax a deductible business expense?

No, income tax is not an ordinary deductible operating expense. For a company, income tax is a charge against profit, carried as an asset when paid in advance and settled against the year’s liability, not a business expense that reduces taxable profit. For a sole proprietor, the income tax is a personal liability of the owner rather than a business expense at all. Treat the two cases differently.

Reconciling payments with accounting records

Match each advance tax challan to the corresponding bank debit and to your books, so the amounts, dates, and tax year line up. If you track invoices, expenses, and bank transactions in ProfitBooks, reconciling the challans against bank debits during your monthly close helps catch a wrong tax year or a missing credit before it compounds at year-end.

 

Common Advance Tax Mistakes

• Confusing turnover with taxable income. Estimate tax on profit after expenses and deductions, not on receipts.
• Ignoring TDS and TCS. Reduce the estimated tax by credits actually available, and reconcile against Form 26AS.
• Using the wrong rates or old terminology. Use Tax Year 2026-27 rates and the Income-tax Act, 2025 sections, not old assessment-year figures.
• Misreading cumulative instalments. The 15/45/75/100 targets are running totals, not separate quarterly amounts.
• Assuming presumptive taxation applies. Check eligibility; it is not available to everyone.
• Not revising the estimate. Update the forecast and later instalments when income changes materially.
• Ignoring interest. Check the Section 424 and 425 exposure before final settlement.
• Not retaining challans. Keep every challan and CIN and reconcile them with your books.

 

Advance Tax Checklist for 2026-27

• Estimate total taxable income, not turnover.
• Identify the correct taxpayer category and tax regime.
• Calculate the estimated tax using the applicable rates.
• Account for relevant TDS/TCS and other credits.
• Check whether the liability reaches the ₹10,000 threshold.
• Confirm the applicable schedule: four instalments, or single by 15 March for presumptive.
• Review any missed instalments and the potential interest.
• Pay through the official portal using the correct tax year.
• Save the challans and reconcile the payments with your bank records.
• Update the estimate if income changes materially.

 

Frequently Asked Questions

 

Conclusion

Advance tax under the Income-tax Act, 2025 comes down to a few points: it is based on your estimated tax liability, not your turnover; the ₹10,000 threshold is checked after TDS and TCS; the 15/45/75/100 instalment targets are cumulative; qualifying presumptive taxpayers pay once by 15 March; and interest under Sections 424 and 425 applies when the overall or instalment requirements are not met.

With the June and September instalments for Tax Year 2026-27 already behind us, the useful next step is a short review: estimate your taxable income for the year, check how much TDS has actually been credited, and compare your cumulative advance tax paid against the target for the next deadline, so any shortfall is cleared before it grows.