Advance Tax under the Income-tax Act, 2025: Instalments, Exemptions and Interest
This article walks through the advance tax scheme of the Income-tax Act, 2025 provision by provision, from the liability in Section 403 to the interest charged under Section 424 and Section 425, which correspond to Section 234B and Section 234C of the Income-tax Act, 1961.
Advance tax is self-assessed and no notice precedes it. An assessee who misjudges the instalment dates or the base on which interest is tested pays interest even where the final tax is correctly paid. A working knowledge of the thresholds is therefore needed at every quarter-end.
Section 403: who pays
Section 403 requires every assessee to pay advance tax on current income for the tax year. Two assessees are outside the obligation:
- A resident individual who is a senior citizen (aged 60 years or more at any time in the tax year) and has no income under the head "Profits and gains of business or profession".
- Any assessee whose tax payable for the year is less than Rs 10,000.
The first exemption is lost the moment the individual has any business or professional income, however small. The second is tested on tax payable, which means after taking credit for TDS and TCS.
Section 405: computation
Section 405 sets out the method in four steps:
- Estimate the current income of the tax year.
- Compute income-tax on that estimate at the rate in force for the tax year. Rates are fixed annually by the Finance Act.
- Deduct the TDS and TCS credit available.
- The balance is the advance tax payable.
Because the estimate is the assessee's own, the Act measures its accuracy later, through the interest provisions, and not through any demand.