What Is Advance Tax and How Is It Calculated?

Advance tax is income tax you pay in installments during the year you earn the income, rather than in a lump sum after the year ends. To calculate it, you project your total income for the year, apply the applicable tax rates and deductions, subtract any tax already withheld at source, and pay the remaining liability in scheduled installments. India’s Income Tax Act uses the term “advance tax”; the U.S. equivalent is called “estimated tax.” The obligation is the same in both systems: if regular paycheck withholding won’t cover your full bill, you owe periodic payments on a fixed schedule, and missing them triggers interest charges.

Who Has to Pay

India

Under Section 208 of the Income Tax Act, you must pay advance tax if your estimated tax liability for the financial year, after subtracting Tax Deducted at Source, is ₹10,000 or more.¹ That catches salaried workers with side income, freelancers, business owners, and anyone with meaningful investment gains. If your employer’s TDS already brings the remaining liability below ₹10,000, you don’t owe advance tax.

Resident senior citizens aged 60 or older are exempt under Section 207, but only if they have no business or professional income. A retiree living on pension and bank interest can settle up when filing the return. Start a consulting practice, and the exemption disappears.¹

United States

You generally owe estimated tax payments if you expect to owe at least $1,000 in federal tax for 2026 after subtracting withholding and refundable credits, and your withholding and refundable credits will be less than the smaller of 90% of your 2026 tax or 100% of your 2025 tax.² This captures freelancers, gig workers, landlords, retirees with investment income, and salaried employees whose paycheck withholding falls short. If your total tax due comes in under $1,000 at filing time, no penalty applies regardless of what you paid during the year.³

Many states with income taxes impose their own estimated tax requirements. Thresholds typically range from $300 to $1,000. Check your state’s revenue department for specifics.

How to Calculate What You Owe

India

Start by projecting your total income for the financial year across every source: salary, rental income, interest from savings and fixed deposits, capital gains from selling stocks or property, and any business or freelance earnings. Subtract the deductions you expect to claim under Chapter VI-A (sections like 80C and 80D) to arrive at taxable income. Apply the current tax slab rates. Subtract any TDS that employers or banks have already withheld. What’s left is your advance tax liability.

Then split that liability across the installment schedule described below. If your income changes materially during the year, recalculate before the next installment. You can adjust later payments upward to make up for earlier shortfalls, so long as you hit each cumulative target by its deadline.

United States

The IRS provides Form 1040-ES with a worksheet that walks through the calculation. Estimate your adjusted gross income, figure your expected deductions (standard or itemized), apply the 2026 tax rate brackets, and add self-employment tax if applicable. The self-employment tax calculation for 2026 uses a Social Security wage base of $184,500.² Subtract any withholding and refundable credits from your total expected tax. The remainder is what you owe across four estimated payments.

If your income arrives unevenly, the annualized income installment method lets you match payments to when income actually shows up. A freelancer who earns most of their income in the fourth quarter can make smaller early payments and a larger one at the January deadline. Complete Schedule AI on Form 2210 to use this method.⁴

Payment Deadlines

India’s Quarterly Schedule

Indian advance tax is due in four installments across the financial year (April 1 through March 31). Each deadline represents a cumulative percentage of your total estimated liability:

June 15: at least 15% paid
September 15: at least 45% paid
December 15: at least 75% paid
March 15: 100% paid

These are cumulative targets. The September payment isn’t 45% of your total tax on its own; if you already paid 15% in June, you need 30% more by September to hit 45%. Overpaying early counts toward later installments, which can be a useful hedge if your income projections are uncertain.

U.S. Quarterly Schedule

Federal estimated tax payments are due in four installments, each covering a specific income period, and each is 25% of the required annual payment:³

April 15: covers income earned January 1 through March 31
June 15: covers income earned April 1 through May 31
September 15: covers income earned June 1 through August 31
January 15 of the following year: covers income earned September 1 through December 31

The quarters aren’t evenly spaced. The second payment lands just two months after the first, which catches people off guard. If a due date falls on a Saturday, Sunday, or legal holiday, the deadline shifts to the next business day.⁵ None of the 2026 standard dates land on weekends.

How to Submit Payments

India

Advance tax payments are made through the Income Tax Department’s e-filing portal using the e-Pay Tax feature. After logging in with your PAN, generate a Challan Reference Number by selecting the correct assessment year and choosing “Advance Tax” as the payment type.⁶ Pay through net banking, debit card, or at an authorized bank branch using the generated challan.

Save the challan receipt you receive after payment. You’ll need the details when filing your return to reconcile your advance tax credits.⁷

United States

IRS Direct Pay is the simplest option for most individuals. It requires no registration, pulls the payment straight from your bank account, and lets you schedule or cancel up to two days before the payment date.⁸ You can also pay through your IRS Online Account.

The Electronic Federal Tax Payment System (EFTPS) is no longer accepting new individual enrollments. Existing account holders can continue to use it and schedule payments up to 365 days ahead.⁹ Credit and debit card payments are also accepted, though processors charge a convenience fee.

U.S. Safe Harbor Rules

The U.S. system gives you two ways to guarantee no underpayment penalty, regardless of what you ultimately owe. You’re protected if your estimated payments plus withholding equal at least 90% of the tax shown on your 2026 return, or 100% of the tax on your 2025 return, whichever is less.³

Higher earners face a stricter rule. If your adjusted gross income exceeded $150,000 in the prior year ($75,000 if married filing separately), the 100% threshold rises to 110% of the prior year’s tax.¹⁰ The prior-year method is usually the easier safe harbor to hit because it doesn’t require accurately predicting current-year income. The 90%-of-current-year method works better when you know income will drop.

Increasing Withholding Instead

If you have a day job and earn side income that triggers estimated tax requirements, consider a simpler path: increase your paycheck withholding. Federal withholding is treated as paid evenly throughout the year no matter when it actually happened.¹¹ That’s a real advantage over estimated payments, which are judged quarter by quarter. Realize in November that you’re behind? Bumping up your W-4 withholding for the remaining paychecks effectively spreads that payment across the whole year for penalty purposes.

The IRS Tax Withholding Estimator calculates the right adjustment and generates a pre-filled Form W-4 to hand to your employer.¹² It eliminates the need to remember four separate payment deadlines.

Penalties for Getting It Wrong

India: Sections 234B and 234C

Two interest provisions apply when you miss advance tax obligations in India, and they can stack.

Section 234B applies when your total advance tax payments for the year fall below 90% of your assessed tax liability. The interest is 1% per month (or part of a month) on the shortfall, running from April 1 of the assessment year until you pay the balance. Paying at least 90% by March 31 avoids this charge entirely.

Section 234C targets individual installment shortfalls rather than the year-end total. If you haven’t met the cumulative percentage by a quarterly deadline, interest of 1% per month runs on the shortfall until the next installment date. Missing the June 15 target by ₹20,000, for instance, means three months of 1% interest on that ₹20,000 (the gap until September 15). Both are simple interest, but they add up when multiple installments are missed.

United States: Underpayment Penalty

The IRS penalty uses the federal short-term interest rate plus 3 percentage points, and it compounds daily for each quarter you underpay.³ The rate adjusts quarterly. The penalty applies separately to each missed or short installment, running from the due date until the earlier of the payment date or April 15 of the following year. Even if you’re owed a refund when you file, the IRS can still charge penalties for quarters where payments were late.

When Penalties Can Be Waived

The IRS can waive the underpayment penalty in two situations: if the underpayment resulted from a casualty, disaster, or other unusual circumstance where imposing the penalty would be unfair, or if you retired after reaching age 62 (or became disabled) during the current or preceding tax year and the underpayment was due to reasonable cause.¹³ File Form 2210 with supporting documentation, like proof of your retirement date or insurance and police reports for a casualty loss. For federally declared disaster areas, the IRS usually applies relief automatically.

In India, Sections 234B and 234C are generally applied automatically with limited discretionary waiver authority. The main statutory relief comes through the resident-senior-citizen exemption for those without business income.¹

1
Income Tax Department. Returns and Forms Applicable for Senior Citizens and Super Senior Citizens for AY 2025-26
2
IRS.gov. 2026 Form 1040-ES Estimated Tax for Individuals
3
Office of the Law Revision Counsel. 26 U.S. Code 6654 – Failure by Individual to Pay Estimated Income Tax
4
Internal Revenue Service. Instructions for Form 2210 (2025)
5
Internal Revenue Service. Individuals 2
6
Income Tax Department. Create Challan Form (CRN) User Manual
7
Income Tax Department. e-Pay Tax FAQs
8
Internal Revenue Service. Direct Pay with Bank Account
9
Internal Revenue Service. EFTPS: The Electronic Federal Tax Payment System
10
Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
11
Internal Revenue Service. Publication 505 (2025), Tax Withholding and Estimated Tax
12
Internal Revenue Service. Tax Withholding Estimator
13
Internal Revenue Service. Instructions for Form 2210 – Underpayment of Estimated Tax by Individuals, Estates, and Trusts (2025)