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Advance Tax under Income Tax Act 2025

By
Devesh Thakur
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Advance Tax under Income Tax Act 2025 | CA Devesh Thakur | eTaxSave
Income Tax Act 2025 Series · CA Devesh Thakur

Advance Tax under Income-tax Act, 2025

Complete student guide — Tax Year concept, installment schedule, edge cases, presumptive taxation & interest provisions. Everything in one place.

CA Devesh Thakur Income Tax Act 2025 7 Chapters · Full Guide
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INTRO

What is Advance Tax?

If you’re trying to understand Advance Tax under the new Income-tax Act, 2025, the confusion is not because the law is complex — it’s because most students mix up the income year, payment timing, and applicable Act.

This guide will fix that. Read each section carefully — weak concepts here will directly cost you marks in exams and mistakes in practice.

📌 Definition: Advance Tax is tax paid in advance during the financial year in which income is earned, rather than after the year ends. It applies when total estimated tax liability is ₹10,000 or more.

Basic Flow

Income
Earned
➜
Tax ≥
₹10,000?
➜
Advance Tax
Applicable ✓
Key Takeaway: Advance tax is always paid in the same year income is earned. This is the Tax Year concept introduced in the new Act.
CHAPTER 1

Core Logic — Income Year Decides

Before memorising anything, get this straight:

Advance tax depends on income year — not payment date.

Step-by-Step Logic

  • 1Income is earned during a financial year
  • 2Check: Is total tax liability ≥ ₹10,000?
  • 3If No → No advance tax required
  • 4If Yes → Advance tax is applicable
  • 5Identify the year in which income is earned — this determines which law applies

Which Law Applies?

Income PeriodApplicable Law
Before 1 April 2026 (FY 2025-26)Income-tax Act, 1961
On / After 1 April 2026 (FY 2026-27 onwards)Income-tax Act, 2025
Conclusion: The applicable law is determined by the income year, not when you pay tax. The payment date is irrelevant for deciding which Act applies.
CHAPTER 2

Advance Tax Installment Schedule

Many students assume the new Act changes the payment structure. It does not. The installment schedule is identical under both Acts.

Due DateCumulative % to PayInstallment
15 June15%Q1
15 September45%Q2
15 December75%Q3
15 March100% ⭐Final
⚠️ Key Point — Cumulative Percentages: These percentages are cumulative. By 15 September, you must have paid 45% of total estimated tax — not just 30% extra on top of June’s payment.
🎯 Exam Tip: This structure remains exactly the same under both old and new Act. Do not waste revision time re-learning this — it has not changed.
CHAPTER 3

Assessment Year vs Tax Year — The Key Shift

This is where confusion starts for most students. The new Act introduces “Tax Year” — but it is not a structural reform.

🔴 Old System (Act 1961)

Income earned in Financial Year

Tax assessed in Assessment Year

Two-year terminology (FY + AY)

🟢 New System (Act 2025)

Income earned in Tax Year

Advance tax paid in same Tax Year

Single-year terminology (TY only)

Reality Check: Only the terminology has changed. The underlying mechanism remains identical. “Assessment Year” has simply been renamed to “Tax Year.” If you think this is a major structural reform, you are misunderstanding the law.
📌 Remember: Old → Assessment Year concept  |  New → Tax Year concept  |  Concept same. Only name changed.
CHAPTER 4

Edge Cases — Where Students Lose Marks

This is where most exam questions are framed. Weak concepts here will directly cost marks. Study all three cases carefully.

📅 Case 1: Last Installment — 15 March 2026
  • Income belongs to FY 2025-26
  • Payment made on 15 March 2026
  • New Act starts from 1 April 2026
✅ Conclusion: Income-tax Act, 1961 applies
Reason: Income belongs to pre-2026 period — income year decides, not payment date.
📌 Case 2: Interest on Shortfall / Default
  • Advance tax default occurred in FY 2025-26
  • Interest is charged/levied in FY 2026-27
✅ Conclusion: Income-tax Act, 1961 applies
Reason: Default originated under old law. Interest follows the origin of default, not the year of levy.
🆕 Case 3: First Installment — 15 June 2026
  • Income belongs to FY 2026-27
  • Payment made after new Act is effective
✅ Conclusion: Income-tax Act, 2025 applies
Reason: Income arises under the new regime (post 1 April 2026).
🔑 The Rule: Income year decides which law applies. Always identify the FY / Tax Year of income first — then decide the Act.
CHAPTER 5

Presumptive Taxation — Single Payment Rule

Students often overcomplicate this. It is entirely straightforward.

Rule for Presumptive Taxation
100%
Entire advance tax must be paid in ONE single installment
on or before 15 March of the Tax Year
  • Entire advance tax in one installment only — no quarterly breakdown
  • Payment deadline: on or before 15 March
  • No quarterly payments required — this is the key benefit
  • Rule remains unchanged under Income-tax Act, 2025

Who Qualifies?

CategorySection (Old Act)
Small businesses (turnover up to ₹2 crore / ₹3 crore)Sec 44AD
Professionals (receipts up to ₹75 lakh)Sec 44ADA
TransportersSec 44AE
Important: This rule remains unchanged under the new Income-tax Act, 2025. Do not assume it has been modified.
CHAPTER 6

Interest on Advance Tax

Interest provisions remain practically the same under the new Act. Only the section numbers differ — rates and logic are unchanged.

1%
per month
Default / Short Payment
(less than 90% tax paid)
1% / 3%
per month
Deferment of Installments
(depending on delay)
TypeRateWhen it Applies
Failure to pay / Short payment1% / monthLess than 90% of total tax paid as advance tax
Deferment of installments1% or 3%Installment not paid or paid short by due date
Key Takeaway: Rates and logic are unchanged — only section numbers differ in the new Act. Interest follows the origin of default, not the year of levy (see Edge Cases, Chapter 4).
CHAPTER 7

Master Summary & Exam Tips

If you remember nothing else, remember this 3-step framework:

1

Identify the Income Year

Before 1 April 2026 = Old Act (1961)  |  After 1 April 2026 = New Act (2025)

2

Decide the Applicable Act

Income year decides the law — not payment date, not assessment date

3

Apply Standard Advance Tax Rules

Installments, threshold, interest rates, presumptive rules — all identical under both Acts

What Stays the Same Under Both Acts

Installment Dates 15 Jun / 15 Sep / 15 Dec / 15 Mar
Threshold ₹10,000 minimum tax liability
Interest Rate 1% & 1%/3% per month
Presumptive Tax Rule 100% by 15 March, single payment
Only Real Change “Assessment Year” → “Tax Year”
Core Logic Income year decides applicable law
❌ Common Mistakes to Avoid:
  • Focusing on payment dates instead of income year
  • Assuming new Act = entirely new system (it’s mostly terminology)
  • Memorising sections without understanding the flow — this fails in both exams and practice
APPENDIX

Original Handwritten Notes Reference

These are the original handwritten notes by CA Devesh Thakur that form the foundation of this guide — ideal for quick visual revision before exams.

CA Devesh Thakur

Handwritten notes — Advance Tax under Income-tax Act, 2025 (Tax Year Concept) · © CA Devesh Thakur / eTaxSave

Quick Revision from Notes:
  • Tax ≥ ₹10,000 triggers advance tax obligation
  • Old: Assessment Year concept  |  New: Tax Year concept — only name changed
  • Income year decides which Act applies — not payment date
  • 15 March 2026 payment → Old Act  |  15 June 2026 → New Act
  • Interest on shortfall → Old Act if default originated before 1 April 2026

Download the Complete Study Notes

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