All you need to know about advance tax

Most people think of taxes only when filing their Income Tax Return. But tax isn’t an annual event. It has to be paid as the income is earned, and that’s where advance tax comes in.

With the deadline for the third installment of advance tax on 15 December 2025, this is a good time for traders and investors to check if they need to pay advance tax and avoid interest charges.

This explainer covers what advance tax is, who needs to pay it, misconceptions to avoid, how to calculate your liability, and how to pay it online.

What is advance tax?

Advance tax means simply paying your income tax in parts during the year instead of paying everything while filing your ITR.

It follows a “pay as you earn” approach; whenever your tax liability crosses a threshold, you must start paying it during the financial year.

When is advance tax applicable?

Under tax rules (Section 208), you must pay advance tax if your net tax payable for the year is ₹10,000 or more. However, senior citizens (60+ years) who do not have income from a business or profession are exempt.

Here are the four installments of advance tax for FY 2025-26:

• 15th June 2025: 15% of estimated tax liability
• 15th September 2025: 45% of estimated tax liability
• 15th December 2025: 75% of estimated tax liability
• 15th March 2026: 100% of estimated tax liability

Misconceptions about advance tax

Salaried individuals don’t need to pay advance tax

Salary TDS covers only salary income. If you earn from capital gains, F&O, dividends, rental income, or other sources, you may still need to pay advance tax.

Traders can pay everything at year-end

F&O and intraday income are treated as business income. Business income must follow the quarterly advance tax schedule. Paying the entire amount later leads to interest charges.

Businesses can pay the full amount on 15 March

This applies only to those under the presumptive taxation scheme. Others must follow the quarterly installments.

Advance tax for Zerodha traders and investors

Many traders wait until the year ends to see their net profit or loss. But advance tax is based on income earned during the year and must be paid quarterly. Missing installments leads to interest.

For F&O and intraday traders

F&O profits are treated as non-speculative business income, and intraday equity profits are treated as speculative business income; both fall under business income.

You must estimate your annual profits and pay advance tax as per the installment schedule.

If you overpay or end the year in a loss, the excess is refunded after filing your return.

For equity investors

Capital gains work a little differently.

The law recognises that you can’t always predict when gains will occur. If you realise gains after an installment date and pay the tax in the remaining installments (or by 31 March), interest under Section 234C doesn’t apply for the earlier shortfall.

In practice, this means you pay advance tax on capital gains when you actually book them.

Example:

• If you earn no gains in Q1 and Q2 but realise ₹2,00,000 of gains in Q3, you pay 75% of the tax on those gains by 15 December 2025. 
• If you realise another ₹1,00,000 in Q4, you compute tax on the total ₹3,00,000 and reduce what you already paid in December.

Current tax rates for capital gains

As per the Union Budget 2024, here are the applicable tax rates for equity investments:

Long-term Capital Gains (LTCG):

• Holding period: More than 12 months
• Tax rate: 12.5% (without indexation benefit)
• Exemption: Up to ₹1.25 lakh per financial year

Short-term Capital Gains (STCG):

• Holding period: 12 months or less
• Tax rate: 20%

The above rates are only for equity. To learn how debt instruments are taxed, check out this Varsity article.

How to calculate your advance tax liability

1. Estimate your total income
   

Include your salary, business income (such as F&O and intraday), realised capital gains, dividends, interest, and any other taxable income.

2. Subtract eligible deductions

Subtract deductions such as Section 80C, 80D, and others if you follow the old tax regime, or deductions available under the applicable sections in the new tax regime.

3. Compute your tax

Apply the correct income-tax slab rates and special rates for capital gains such as LTCG and STCG, based on the regime you have chosen.

4. Check if your tax liability after TDS/TCS exceeds ₹10,000

Advance tax becomes mandatory only if your total tax payable after adjusting TDS and TCS is more than ₹10,000.

5. Pay advance tax on the remaining amount

Subtract TDS/TCS already paid, and pay advance tax on the balance as per the installment schedule.

Using Console for advanced tax calculation

All the data you need to calculate advance tax is available on Zerodha Console:

• Tax P&L: Realised capital gains and F&O profits
• Tradebook: Full list of executed trades
• Funds statement: All credits and debits
• Contract notes: Official trade confirmations
• Dividend report: Dividends received

These reports make it easy to calculate your actual profits and determine your advance tax liability accurately.

Interest on late payment

Interest on advance tax is charged under two sections (234B and 234C), and each follows a different rule.

Section 234B: 1% per month if the total advance tax paid is less than 90% of your tax liability (charged from 1st April of the following year).

Section 234C: 1% per month on the shortfall when quarterly installments aren’t paid on time or are paid less than the required percentage.

Interest is charged at 1% per month on the shortfall for the period linked to that specific installment.

How to pay advance tax online

• Visit the Income Tax e-filing portal
• Click “e-Pay Tax” under Quick Links
• Enter your PAN, mobile number, and OTP
• Choose “Income Tax” as the payment type
• Select AY 2026–27 (for FY 2025–26)
• Choose “Advance Tax (100)”
• Enter the amount and pay through net banking, debit card, or UPI
• Save the challan receipt for your records and for ITR filing

Your advance tax payment will reflect in your AIS (Annual Information Statement)

Advance tax helps you avoid interest and last-minute stress during tax filing.

Before 15 December, review your trading and investment activity on Console to see whether you have a tax liability.

If you need further assistance with tax filing, visit Quicko.