Advance tax for businesses

Who has to pay advance tax

If your estimated tax liability for the year, after reducing TDS and TCS already credited, is above the limit set in the law — currently ₹10,000 — you are expected to pay advance tax. This applies to proprietors, partnership firms, LLPs and companies alike.

Businesses that opt for presumptive taxation (where profit is declared at a prescribed percentage of turnover) generally pay the full advance tax in a single instalment by 15 March. Confirm whether this applies to you with your CA.

The limit, percentages and dates below have been stable for several years but can change. Confirm the current figures on incometax.gov.in each year. From 1 April 2026 the Income-tax Act, 2025 applies; the advance tax structure continued, but references in the law changed.

The four instalments

The percentages are cumulative: by 15 September you should have paid 45% in total, not 45% more.

A worked example

A partnership firm estimates for the year:

If profit turns out higher by December, the December and March instalments go up to catch up. If it turns out lower, later instalments go down.

How to estimate profit during the year

The hardest part of advance tax is estimating a year's profit in June. A practical method:

1. Take profit for the months completed so far from your P&L, with stock updated.
2. Look at the same months last year and the full-year profit last year. If April–August was 35% of last year's profit, use that pattern.
3. Adjust for known changes: a new branch, a big order, a price change, the festive season.
4. Add income outside the business — rent, interest, capital gains — for proprietors.
5. Ask your CA to compute tax on the estimate.

Revisit before each instalment. Estimating in September with five months of actuals is much more reliable than in June.

What happens if you pay late or too little

Interest is charged for shortfall in each instalment and for not paying enough advance tax by the year end. The interest is calculated monthly on the shortfall, so a small delay costs relatively little, but a full year of underpayment adds up. If you pay more than needed, the excess is adjusted against your final tax and the balance refunded after your return is processed.

A missed June instalment is not a disaster — catch up by September. What hurts is ignoring advance tax until March and then finding the cash is not there.

Paying advance tax and keeping records

Advance tax is paid online through the income-tax portal or your bank's net banking, using the PAN of the business — the firm's PAN for a partnership, the owner's PAN for a proprietorship. Choose the correct tax type and the correct year; a payment made under the wrong year or wrong type takes time and paperwork to correct.

After each payment:

• Save the challan receipt with the payment reference in a folder for the year.
• Enter the payment in Tally against an advance tax ledger (not an expense ledger), so the books show tax paid separately from business costs.
• Share the challan with your CA so it is included when the return is prepared.
• Check a few weeks later that the payment appears against your PAN in your tax credit statement on the portal.

For proprietors, the business's profit is part of the owner's personal income, so the estimate should include other income — interest, rent, capital gains — and the owner's deductions. Partners pay tax on their own share of remuneration and interest from the firm separately from the firm's own advance tax.

Plan the cash, not just the tax

Advance tax dates often clash with other outflows. Mid-September and mid-December fall in the run-up to festive buying for many trades, when stock purchases peak. Mid-March sits next to year-end supplier settlements. Add the expected instalment to your cash plan a month ahead, alongside GST and TDS payments. See cash flow management for MSMEs and TDS basics.

This is general information, not tax advice.

Estimating profit with Cashflow OS

Cashflow OS does not calculate or pay tax. It gives you the numbers to estimate from, synced from Tally: Profit & Loss for the year so far, the same period last year using custom date ranges, and the Balance Sheet. The Home screen compares sales and purchases with the previous period. Export to Excel or PDF to send to your CA a week before each instalment date. See financial reports.