How to Calculate Advance Tax for AY 2025-26: A Step-by-Step Guide

Advance tax is a key part of tax compliance for individuals and businesses whose total tax liability exceeds ₹10,000 in a financial year. It allows you to pay your taxes in installments instead of a lump sum during the filing of your income tax returns. If you’re planning to calculate and pay your advance tax for the Assessment Year (AY) 2025-26, this step-by-step guide will walk you through the process.

What is Advance Tax?

Advance tax is the tax you pay in advance during the financial year, based on your estimated income for the year. It applies to individuals whose total tax liability exceeds ₹10,000 in the financial year. This tax helps break down the total tax payable into manageable installments throughout the year.

It applies to income from various sources such as salary, business profits, rental income, capital gains, etc.

How to Calculate Advance Tax: A Simple Guide

Follow these five steps to calculate your advance tax liability for AY 2025-26:

1. Estimate Total Income
   Add up all sources of income for the financial year (April 1 to March 31). Common sources of income include:
   • Salary
   • Business income
   • Rental income
   • Interest income (e.g., from fixed deposits)
   • Capital gains
2. Apply Deductions
   Deduct eligible exemptions and deductions from your total income to arrive at your net taxable income. Common deductions include:
   • Section 80C: Up to ₹1.5 lakh for investments in PPF, LIC premiums, etc.
   • Section 80D: Health insurance premiums
   • Section 80G: Donations to charitable organizations
3. Calculate Tax Liability
   Once you’ve determined your net taxable income, apply the applicable tax slabs to calculate your tax liability. These slabs can vary depending on whether you are in the old or new tax regime.
4. Adjust for TDS
   Subtract any Tax Deducted at Source (TDS) that has already been deducted from your income (e.g., from your salary, bank interest, or other sources) from your total tax liability.
5. Determine Advance Tax Liability
   If your net tax liability exceeds ₹10,000, you are required to pay advance tax. The advance tax is paid in four installments throughout the year.

Advance Tax Payment Schedule

You must pay your advance tax in installments as per the following schedule:

Due Date	Percentage of Total Advance Tax Payable
On or before June 15	15% of the total advance tax liability
On or before September 15	45% (cumulative)
On or before December 15	75% (cumulative)
On or before March 15	100% (cumulative)

Note: If you opt for the Presumptive Taxation Scheme under sections 44AD or 44ADA, you need to pay the entire advance tax by March 15, 2025.

Example of Advance Tax Calculation

Here’s an example to help you understand how to calculate your advance tax liability:

Freelancer Example:

• Gross Receipts: ₹20,00,000
• Expenses: ₹12,00,000
• Deductions: ₹40,000 (PPF) + ₹25,000 (LIC Premium) + ₹12,000 (Medical Insurance) = ₹77,000
• TDS: ₹30,000
• Interest on Fixed Deposits: ₹10,000

Step 1: Net Income Calculation

First, subtract your expenses and deductions from your gross receipts to calculate your net income.

    Net Income = Gross Receipts - Expenses - Deductions
    Net Income = ₹20,00,000 - ₹12,00,000 - ₹77,000 = ₹7,23,000

Step 2: Tax Calculation

Next, apply the tax slabs for the financial year to calculate the tax on ₹7,23,000. For simplicity, let’s assume the calculated tax is ₹31,400.

Step 3: Adjust for TDS

If ₹30,000 has already been deducted as TDS, subtract it from your total tax liability:

    Advance Tax Liability = Tax Payable - TDS
    Advance Tax Liability = ₹31,400 - ₹30,000 = ₹1,400

Step 4: Installment Payments

Based on the advance tax liability of ₹1,400, here’s how the payments should be made:

• By June 15: ₹210 (15% of ₹1,400)
• By September 15: ₹630 (45% of ₹1,400)
• By December 15: ₹630 (75% of ₹1,400)
• By March 15: Remaining balance (if applicable)

Interest Calculation Example for Late Payment

If you miss the June 15 payment deadline or pay less than the required 15% of the total advance tax by June 15, you will be charged interest under Section 234C for late payment. Here’s how the interest will be calculated:

Scenario: Missed June 15 Deadline

Let’s say the total advance tax liability was ₹10,000, and you miss the June 15 deadline.

• The required payment by June 15 is 15% of ₹10,000 = ₹1,500.
• If you fail to pay this amount, and you make the payment later, you will incur an interest of 1% per month on the shortfall from June 15 until you pay the overdue amount.

Interest Calculation for Missing June 15 Payment:

If you make the payment by August 15, which is 2 months after June 15:

    Shortfall in payment = ₹1,500
    Interest for 2 months = 1% per month × ₹1,500 × 2 months = ₹30

In this case, you would pay an additional ₹30 as interest for the two-month delay.

Penalties for Missing Advance Tax Deadlines

It’s essential to make your advance tax payments on time. If you miss the deadline, you could face penalties, including:

• Interest Penalty: Under Section 234C, an interest rate of 1% per month will be charged on any outstanding advance tax amount due. This interest will apply to any shortfall from the due date.
• Shortfall in Payments: If you fail to pay at least 15% of your total advance tax liability by June 15, you will be charged additional interest for the shortfall, which will apply from April 1 until the assessment is completed.
• Section 234B: If you don’t pay at least 90% of your total tax liability by the end of the financial year, you will incur interest under Section 234B for delays in advance tax payment.

Conclusion

Calculating and paying advance tax on time is critical for avoiding penalties and ensuring compliance with tax laws. By estimating your income early, applying deductions, and calculating your tax liability accurately, you can make timely payments and stay compliant.

The payment schedule for advance tax can help you plan your finances better, spreading the tax burden across the year. Always remember to pay on time to avoid interest and penalties.

If you are unsure about how to calculate or pay your advance tax, or if you need personalized assistance, consider consulting a tax professional. Timely advance tax payments will keep you on track for a smooth filing process and help you avoid any surprises during tax season.