Advance Tax and Self-Assessment Tax

Income-tax is a tax on the year’s income, but the law does not wait for the year to end before collecting it. Tax deducted at source covers salary and much investment income. For everything else (business profits, capital gains, rent, interest received in full), the taxpayer is expected to estimate the year’s tax and pay it in four instalments while the year is still running. That payment is advance tax. Whatever remains unpaid when the return is prepared is self-assessment tax, and it must be paid before the return is filed. Each shortfall carries interest at a fixed monthly rate. The rate is mechanical, and in the Supreme Court’s words it is “mandatory in nature”.

Which Act governs which year

On 19 October 2026 both Acts are in play at once.

• Advance tax paid during financial year 2025-26 (instalments from June 2025 to March 2026) related to assessment year 2026-27. It is governed by sections 207 to 211 of the Income-tax Act, 1961. Interest for any shortfall, under sections 234B and 234C, is computed under the 1961 Act when the AY 2026-27 return is filed and processed.
• Self-assessment tax for the AY 2026-27 return is paid under section 140A of the 1961 Act.
• Advance tax being paid during financial year 2026-27 (instalments on 15 June and 15 September 2026, and those due on 15 December 2026 and 15 March 2027) is for tax year 2026-27. It is governed by sections 403 to 410 of the Income-tax Act, 2025. The interest provisions are section 424 (the counterpart of section 234B) and section 425 (section 234C). Self-assessment tax for the tax year 2026-27 return will be paid under section 266.

Two transitional points follow from section 536(2) of the 2025 Act. First, clause © keeps the 1961 Act’s provisions for any tax year beginning before 1 April 2026. Second, clause (g), as substituted by the Finance Act, 2026, applies the 1961 Act’s interest provisions to defaults in those years for periods on or after 1 April 2026. It substitutes the 2025 Act’s rate “from the date on which such rate has been modified”. The rates in the two Acts are at present the same: one per cent a month for sections 234B and 234C, and their counterparts.

The e-Pay Tax portal reflects the same split. Its user manual for challans through PAN login says to select “Income Tax Act 1961” for “Assessment Years up to 2026-27, prior years, and Self-Assessment Tax for AY 2026-27”, and “Income Tax Act 2025” for “Tax Years 2026-27 onwards”.

Who must pay advance tax

Section 208 of the 1961 Act makes advance tax payable in every case where the tax payable for the year, computed under the Chapter, “is ten thousand rupees or more”. Section 404 of the 2025 Act uses the same threshold.

Under section 207(2), a resident individual aged sixty or more at any time during the year who has no income under the head “Profits and gains of business or profession” is not liable. Section 403(3) repeats the exemption.

Computing the liability

Under section 209, advance tax is the tax on the estimated current income at the rates in force, less tax deductible or collectible at source. The 1961 Act’s proviso to section 209(1)(d), as the Supreme Court described it in the case below, applies from financial year 2012-13. Where a sum is received without deduction, the tax that should have been deducted cannot be subtracted. Section 405 of the 2025 Act builds the same rule into its formula. Tax deductible or collectible is subtracted only where the payer has actually paid or credited the income after deduction, or the collector has received it after collection.

In DIT v. Mitsubishi Corporation (Supreme Court, 17 September 2021), a Japanese company with liaison offices in India was assessed for assessment years 1998-99 to 2004-05 on income attributed to its Indian operations. The payers had not deducted tax, and the Assessing Officer charged section 234B interest for short advance tax. The Court held that, for years before financial year 2012-13, section 209(1)(d) entitled an assessee “to reduce the amount of income-tax which would be deductible or collectible” even where it received the full amount. The assessee had therefore not defaulted, and the Revenue’s remedy lay against the payers. The Court noted that “the position has changed since the financial year 2012-13” because of the proviso. In the companion Alcatel Lucent appeals it set aside the Delhi High Court’s contrary decision, which had held a non-resident who denied liability could not shift the burden to Indian payers.

The instalments

Section 211(1) of the 1961 Act and section 408 of the 2025 Act set the same table:

On or before	Cumulative amount
15 June	not less than 15 per cent
15 September	not less than 45 per cent
15 December	not less than 75 per cent
15 March	100 per cent

An assessee who declares presumptive income under section 44AD(1) or 44ADA(1) pays the whole by 15 March. The 2025 Act counterpart is section 408(2), which refers to section 58(2), Table serial numbers 1 and 3. Anything paid by 31 March is treated as advance tax for the year. Under section 210(2) (section 406(2)), a person may increase or reduce the later instalments as the estimate changes. An Assessing Officer may also order a previously assessed person to pay advance tax, under section 210(3) (section 407). That order may be answered by intimating a lower estimate.

Interest for paying too little or too late

Shortfall over the year: section 234B / section 424

Section 234B applies where a person liable to advance tax has not paid it, or has paid less than 90 per cent of the “assessed tax”. It charges simple interest at one per cent for every month or part of a month from 1 April after the financial year to the date of determination under section 143(1), or of regular assessment. The interest is on the whole assessed tax, or on the shortfall. “Assessed tax” is the tax on the total income determined, less TDS, TCS and the listed reliefs and credits. Under section 234B(2), self-assessment tax paid before processing stops interest on the amount paid, from the date of payment. Section 424 of the 2025 Act is in the same terms, with the period beginning on 1 April following the tax year.

Shortfall at each instalment: section 234C / section 425

Section 234C charges simple interest at one per cent a month for three months on the shortfall below 15, 45 and 75 per cent of the “tax due on the returned income” at the June, September and December dates. It charges one per cent on the shortfall at 15 March. There is no interest for June or September if at least 12 per cent or 36 per cent had been paid by then. No interest arises on a shortfall caused by under-estimating, or failing to estimate, any of the following, provided the tax on it is paid in the remaining instalments or by 31 March:

• capital gains;
• lottery and similar winnings (section 2(24)(ix));
• business income arising for the first time; or
• dividends (other than deemed dividends under section 2(22)(e)).

For a presumptive-income assessee there is only the March test. Section 425 of the 2025 Act sets out the same scheme as a table, showing “3%” for each of the first three instalments and “1%” for March, and carries the same exceptions in section 425(4).

The interest cannot be bargained away

In CIT v. Anjum M.H. Ghaswala (Supreme Court, Constitution Bench, 18 October 2001), the question was whether the Settlement Commission could waive or reduce interest under sections 234A, 234B and 234C when settling a case. A seven-member bench of the Commission had held it could, overruling a five-member bench. The Supreme Court held that the interest under these sections “is mandatory in nature”. Because no power of waiver had been expressly conferred on the Commission, it could not waive or reduce the interest “except to the extent of granting relief under the Circulars issued by the Board under Section 119”. The decision is the basis for the general understanding that these charges are compensatory and automatic, and that relief, where it exists, comes from the statute or a Board order.

Self-assessment tax

Section 140A of the 1961 Act requires that, where tax is payable on the basis of a return after taking credit for tax already paid, TDS, TCS, and the listed reliefs and credits, the assessee pay that tax “together with interest and fee payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return”. The return must be “accompanied by proof of payment”. Three rules matter in practice:

• Order of appropriation. If the payment falls short, the Explanation to section 140A(1) applies it first to the fee, then to interest, and only then to tax. A short payment therefore leaves tax unpaid, and further interest runs on it.
• Interest is part of the payment. Section 140A(1A) and (1B) direct that interest under section 234A and section 234B be computed for this purpose on the returned income.
• Default. Under section 140A(3), an assessee who fails to pay is “deemed to be an assessee in default” for the unpaid amount, “without prejudice to any other consequences”.

Section 266 of the 2025 Act reproduces these rules in sub-sections (1), (3), (4), (5) and (8).

What to have ready

• An estimate of the year’s income, from the books for business income, from broker statements for capital gains realised to date, and from bank records for interest and rent.
• TDS and TCS already deducted, from Form 26AS and the AIS. Only tax actually deducted reduces advance tax for current years.
• Previous instalments paid, from e-Pay Tax’s Payment History. Each instalment is cumulative.
• For self-assessment tax, the completed return computation, including interest under sections 234A, 234B and 234C, and any fee under section 234F.
• The PAN, and a payment method: net banking, debit or credit card, UPI through the payment gateway, NEFT/RTGS, or bank counter.

Paying through e-Pay Tax

The portal’s user manual for challan creation through PAN login describes the following steps.

1. Log in and select e-File > e-Pay Tax. Choose the Act and click Continue. For AY 2026-27 self-assessment tax, the Act is the 1961 Act. For current advance tax, it is the 2025 Act.
2. Click New Payment, then Proceed on the Income Tax/Corporation Tax tile.
3. Select the year and the minor head, and click Continue. Under the 2025 Act the challan is ITNS 280N. The portal’s FAQ on it lists Advance Tax (100), Self Assessment Tax (300) and Tax on Regular Assessment (400), under major heads 0020 (corporation tax) and 0021 (income tax other than companies). It notes that a separate challan is needed for each minor head.
4. On Add Tax Breakup Details, enter the break-up of the amount, and click Continue.
5. Select the payment mode, then Preview and Make Payment. Choose Pay Now to go to the bank, or Edit to change the details.
6. After payment, download the Challan Receipt, or find it later under Payment History. The receipt carries the Challan Identification Number (CIN), BSR code and date. These are the details a return asks for.

A pre-login route exists too. Under it, the payer enters PAN and mobile number and verifies by OTP.

The portal’s e-Pay Tax FAQs add these points:

• A challan reference number (CRN) is valid for 15 days. An advance tax CRN generated on or after 16 March is valid only to 31 March.
• The payment mode cannot be changed after the CRN is generated.
• Cash paid at a bank counter is limited to ₹10,000 per CRN.
• Pay at Bank Counter is not available to companies or to persons subject to audit under section 44AB.

Correcting a challan

A wrong year or minor head can be corrected online through Challan Correction Request. The portal’s user manual allows:

• a change of assessment year or tax year “within 7 days of the Challan Deposit Date”;
• a change of major or minor head “within 30 days”.

The challan must be unconsumed, of minor head 100, 300 or 400, from AY 2020-21 onwards, and only one online request is allowed for each challan. Other corrections go to the jurisdictional Assessing Officer.

Signing and verification

A challan is not signed. The payment is authenticated by the bank’s own login or card process, and the CIN on the receipt is the proof of payment. The return that claims credit for the payment is verified separately; see E-Verifying a Return.

What can and cannot be changed afterwards

Later instalments can be raised or lowered as the estimate changes. A payment made under the wrong head or year can be corrected within the windows above. After that it stands, subject to the Assessing Officer. Advance tax paid in excess of the final liability is refunded with interest under section 244A, from 1 April of the assessment year if the return is filed by the due date. See Income-Tax Refunds. Interest under sections 234A to 234C is recomputed only when the income itself changes, by rectification, appeal or reassessment (for example, section 234B(4)).

Summary

1. Fix the year. FY 2025-26 payments and AY 2026-27 self-assessment tax fall under the 1961 Act. FY 2026-27 instalments fall under the 2025 Act.
2. Check liability: tax for the year of ₹10,000 or more, unless a resident aged sixty or over with no business income.
3. Estimate the year’s tax, less TDS and TCS actually deducted.
4. Pay 15, 45, 75 and 100 per cent by 15 June, 15 September, 15 December and 15 March. Presumptive-income assessees pay the whole by 15 March.
5. Expect interest at one per cent a month under section 234C (section 425) for each instalment short, and under section 234B (section 424) if less than 90 per cent of the assessed tax is paid by 31 March.
6. Before filing, pay the balance tax, interest and fee as self-assessment tax under section 140A (section 266), remembering that a short payment goes to fee and interest first.
7. Pay through e-Pay Tax under the correct Act, year and minor head, keep the challan receipt, and correct any error within 7 or 30 days.

The next guide covers e-verifying the return, and what happens when the 30-day window is missed.