Advance tax September 15: Who must pay?

New Delhi: September 15 is an important income-tax deadline for taxpayers who earn income beyond their regular salary. Individuals receiving interest from fixed deposits, rental income, dividends, freelance earnings or profits from shares may have to pay the second instalment of advance tax by September 15 if their tax liability crosses the prescribed threshold after accounting for tax deducted at source (TDS), tax collected at source (TCS) and other eligible credits.

Under the regular advance-tax schedule, taxpayers are required to have paid 45% of their estimated annual tax liability by September 15. The requirement generally applies when the net tax payable after adjusting TDS, TCS and other eligible credits is Rs 10,000 or more.

The deadline is particularly relevant for people whose income comes from multiple sources. A salaried employee may already have a significant portion of the tax liability covered through employer-deducted TDS, but additional income from bank deposits, investments or other activities can create a tax shortfall.

Who needs to pay advance tax?

Advance tax is essentially a system of paying income tax during the financial year instead of waiting until the income-tax return is filed.

Taxpayers first estimate their total income for the financial year. This can include salary, bank interest, rent, dividends, capital gains, professional income and other taxable earnings.

The estimated tax liability is then calculated under the applicable tax regime, including the 4% health and education cess. TDS, TCS and advance tax already paid are subsequently deducted to determine the remaining liability.

If the resulting net tax liability is Rs 10,000 or more, advance tax generally becomes applicable, subject to the provisions and exemptions under the Income Tax Act.

For the September instalment, the cumulative payment requirement under the regular schedule is 45% of the estimated annual tax liability.

What if you earn Rs 5 lakh as FD interest?

Fixed-deposit interest can significantly increase the tax liability of an individual who is already earning a regular salary.

Interest earned from bank fixed deposits is generally added to taxable income and taxed according to the applicable slab.

For example, if a taxpayer is already in the 20% tax bracket and earns Rs 5 lakh as FD interest, the additional tax on that income would be around Rs 1 lakh before cess.

After adding the 4% health and education cess, the liability would be approximately Rs 1.04 lakh.

If the bank has not deducted TDS and no advance tax has been paid earlier, 45% of this additional liability — approximately Rs 46,800 — would form part of the September advance-tax calculation.

The actual amount payable can, however, be lower if TDS has already been deducted by the bank or if the taxpayer has paid advance tax earlier.

Does a Rs 5 lakh salary mean 45% advance tax?

No.

A salary of Rs 5 lakh does not mean that a taxpayer has to pay 45% of the salary as advance tax by September 15.

Employers generally calculate TDS on salary after considering the employee’s estimated annual income and applicable tax provisions. If salary is the only source of income and sufficient TDS has already been deducted, there may be no additional advance tax to pay.

The situation changes when the taxpayer earns additional income.

Interest from fixed deposits, rent, dividends, capital gains, freelance income and side-business earnings can increase the overall tax liability. If the tax remaining after TDS and TCS is Rs 10,000 or more, advance tax may become applicable.

What happens if you make Rs 5 lakh from stocks?

Tax treatment for stock-market gains depends on the nature of the investment and whether the gain is classified as short-term or long-term.

For eligible listed equity shares and equity-oriented funds, long-term capital gains are taxed at 12.5% on gains above Rs 1.25 lakh, subject to applicable conditions.

For instance, if an eligible taxpayer makes a long-term equity gain of Rs 5 lakh and the Rs 1.25 lakh exemption has not been used elsewhere, the taxable gain would be Rs 3.75 lakh.

At 12.5%, the tax would be Rs 46,875. After adding the 4% cess, the amount would be approximately Rs 48,750, before considering other adjustments.

Short-term gains on eligible equity investments are currently taxed at 20%. A Rs 5 lakh short-term equity gain could therefore result in tax of around Rs 1 lakh, or approximately Rs 1.04 lakh after the 4% cess, subject to applicable conditions and adjustments.

What if the stock profit comes after September 15?

Investors do not necessarily have to include future capital gains in the September instalment if those gains have not yet arisen.

If a large capital gain is booked later in the financial year, the taxpayer should reassess the estimated annual tax liability and include the resulting liability in the remaining advance-tax instalments, as applicable.

The key point is that taxpayers should not simply wait until filing their income-tax return if a significant tax liability arises during the year. Advance-tax requirements should be recalculated as income changes.

TDS does not always mean no advance tax

One common misconception is that a taxpayer does not need to pay advance tax if TDS has already been deducted.

TDS reduces the outstanding tax liability, but it does not automatically eliminate advance-tax obligations.

For example, an individual may receive salary after regular TDS deductions and also earn substantial FD interest or capital gains. If the additional tax liability from these sources is not sufficiently covered by TDS or other tax credits, advance tax could still be payable.

Taxpayers should therefore consider their total annual income and total tax liability, rather than looking only at the TDS deducted from salary.

What happens if the September 15 deadline is missed?

Missing or falling short of the required advance-tax instalment can result in interest.

Under the Income Tax Act, 2025, Section 425 covers interest relating to deferment of advance tax, corresponding to the earlier Section 234C. The applicable interest is generally 1% per month.

For the September instalment, the relevant period is three months. Consequently, a shortfall against the required 45% cumulative payment could result in interest of approximately 3% of the shortfall, according to the NDTV Profit report.

This makes it important for taxpayers with multiple income sources to review their estimated tax liability before the September deadline.

Taxpayers should review all income sources

The September 15 advance-tax deadline is particularly important for individuals whose financial situation has changed during the year.

A person who began the year with only salary income may later have earned interest from fixed deposits, sold shares at a profit, received rental income or started freelance work. Such additional earnings can increase the overall tax payable.

Taxpayers should therefore calculate their estimated annual income, account for TDS and TCS, consider tax already paid and determine whether their remaining liability crosses the Rs 10,000 threshold.

With the September 15 instalment requiring 45% of the estimated annual tax liability under the regular schedule, timely calculation can help taxpayers avoid unnecessary interest and last-minute tax payments.