Advance Tax FY 2026-27: Q2 Instalment Computation & Payment Guide

Q2 advance tax for FY 2026-27 falls due on September 15, 2026 — six weeks from today. If your estimated income tax liability for the full year exceeds ₹10,000 after TDS, you must have paid 45% of it by that date. Miss or underpay this instalment, and the Income Tax Act charges simple interest at 1% per month on the shortfall — an avoidable cost that compounds across the remaining quarters.

This guide shows you exactly how to compute your Q2 instalment under the Income Tax Act, 2025 (in force from April 1, 2026), account for new-regime vs old-regime differences, and handle capital gains windfalls without triggering unnecessary interest.

Who Must Pay Advance Tax?

Any resident individual, HUF, firm, LLP, company, or other taxable person whose estimated net tax liability for FY 2026-27 exceeds ₹10,000 (after TDS already deducted) must pay advance tax in quarterly instalments.

Two important exceptions:

1. Senior citizens with no business income: Resident individuals aged 60 years or above who have no income from business or profession are fully exempt from advance tax. They pay via self-assessment tax at the time of ITR filing.

2. Presumptive taxation taxpayers: If you have opted for presumptive taxation under Section 44AD (for eligible businesses) or Section 44ADA (for specified professionals), you can pay 100% of your advance tax in a single instalment by March 15, 2027 instead of four quarterly payments.

Who Most Often Underestimates Advance Tax

• Freelancers and consultants: Clients deduct TDS at 10%, but if your gross billing is ₹25 lakh and your effective rate is 30%, TDS covers only one-third of your actual liability.
• F&O and intraday traders: No TDS is deducted on stock market income. Your entire tax liability must come through advance tax.
• SMB proprietors and partnership firms: Revenue is uneven through the year, making early-quarter estimates feel premature — but underestimates cost real money.
• Landlords earning commercial rent: Tenants deduct TDS at 10%, which is insufficient when your marginal rate is 30%.
• Directors receiving fees: If your company deducts TDS at 10% on director fees of ₹20 lakh, you still owe an additional ₹4 lakh in tax on that income alone.

Instalment Schedule for FY 2026-27

The percentages are cumulative, not incremental. By September 15, you must have paid 45% of your full-year estimated advance tax in total — not an additional 45% on top of Q1.

If your full-year net tax after TDS is ₹3,00,000:

• Q1 paid June 15: ₹45,000
• Q2 payment due September 15: ₹1,35,000 − ₹45,000 = ₹90,000

Step-by-Step: Computing Your Q2 Advance Tax

Step 1: Estimate Full-Year Gross Income for FY 2026-27

Compile every income stream expected between April 1, 2026 and March 31, 2027:

• Business or professional income (April–August actuals plus a realistic September–March projection)
• Salary and perquisites
• Interest on fixed deposits and savings accounts (AIS tracks interest accrued, not just interest paid — check it carefully)
• Rental income (residential and commercial)
• Capital gains already realised (LTCG on equity and equity mutual funds taxed at 12.5% above ₹1.25 lakh; STCG at 20%)
• Dividend income (fully taxable at slab rates under both regimes)

Example: Vikram owns a small IT services firm in Hyderabad as a sole proprietorship. His FY 2026-27 projections:

• Business income: ₹28,00,000
• FD interest: ₹1,40,000
• Commercial rental income: ₹2,40,000
• Total estimated gross income: ₹31,80,000

Step 2: Deduct Business Expenses and Eligible Deductions

Under the new tax regime (the default for most taxpayers from FY 2024-25 onwards): deduct only legitimate business expenses. Most Chapter VI-A deductions — 80C, 80D, 80G — are unavailable under the new regime for non-business income.

Under the old tax regime: deduct business expenses plus eligible Chapter VI-A investments.

For Vikram under the old regime:

• Business expenses (team salaries, office rent, software, internet, travel): ₹10,00,000
• Section 80C investments: ₹1,50,000
• Section 80D medical insurance: ₹25,000
• Net taxable income: ₹31,80,000 − ₹10,00,000 − ₹1,50,000 − ₹25,000 = ₹20,05,000

Step 3: Compute Tax on Estimated Income

Under the old regime for FY 2026-27:

For Vikram at ₹20,05,000:

• Nil on ₹2,50,000
• 5% on ₹2,50,000 = ₹12,500
• 20% on ₹5,00,000 = ₹1,00,000
• 30% on ₹10,05,000 = ₹3,01,500
• Base income tax = ₹4,14,000
• Health & Education Cess @ 4% = ₹16,560
• Gross tax liability = ₹4,30,560

Step 4: Subtract TDS Already Deducted or Expected

TDS that clients, banks, and tenants have deducted — or will deduct — during FY 2026-27 reduces your advance tax obligation:

• TDS on business income at 10% (Section 393 of Income Tax Act, 2025): ₹2,80,000
• TDS on commercial rent at 10%: ₹24,000
• TDS on FD interest at 10%: ₹14,000
• Total expected TDS: ₹3,18,000

Net advance tax payable = ₹4,30,560 − ₹3,18,000 = ₹1,12,560

This exceeds ₹10,000, so advance tax is mandatory.

Step 5: Apply the Instalment Percentages

• Full-year advance tax: ₹1,12,560
• Q1 already paid (15% = ₹16,884) on June 15
• Q2 cumulative target (45% = ₹50,652)
• Q2 payment due: ₹50,652 − ₹16,884 = ₹33,768 by September 15, 2026

Pay ₹33,800 (rounding up gives a small cushion). Any excess carries forward and reduces your Q3 obligation.

How to Make the Payment Online

1. 1Log in to the Income Tax e-filing portal at incometax.gov.in
2. 2Click e-Pay Tax in the Quick Links panel
3. 3Select Income Tax as the applicable tax
4. 4Choose payment type Advance Tax (100) and financial year 2026-27
5. 5Enter your computed amount
6. 6Pay via net banking, UPI, RTGS/NEFT, or debit card
7. 7Download and save the challan — the BSR code, challan serial number, and payment date are mandatory fields when filing ITR-3 or ITR-4

Your payment appears in AIS (Annual Information Statement) within 3–5 working days. Always verify the credit in AIS before filing your return.

The Cost of Underpaying: Section 234C Interest

If your cumulative advance tax payment at any due date falls below the required threshold, the Act levies simple interest at 1% per month on the shortfall for the following periods:

• Q1 shortfall (below 15%): 1% per month for 3 months
• Q2 shortfall (below 45%): 1% per month for 3 months
• Q3 shortfall (below 75%): 1% per month for 3 months
• Q4 shortfall (below 100%): 1% per month for 1 month

For Vikram, if he entirely skips Q2 (shortfall: ₹33,768):

• Interest = ₹33,768 × 1% × 3 = ₹1,013

That looks modest, but for a business with ₹10 lakh in advance tax, a Q2 shortfall of ₹3 lakh generates ₹9,000 in 234C interest for that quarter alone — and then additional charges in Q3 if the pattern continues.

The 12% Grace Buffer

There is one statutory safety valve: if your shortfall at Q1 or Q2 does not exceed 12% of the final assessed tax, no Section 234C interest applies for that instalment. This protects taxpayers whose income is difficult to project in the early quarters. However, a business with surging second-half income often burns through this buffer by Q2.

Separately, watch for Section 234B: if total advance tax paid across all four instalments falls below 90% of the final assessed tax, the Department charges 1% per month from April 1 of the assessment year until self-assessment tax is paid. This is computed at the time of ITR processing and can be a significant number for those who substantially underestimate their liability.

Capital Gains Windfalls: The Mid-Year Rule

If you sell a property in August or redeem a large equity mutual fund position in September 2026, you could not have included those gains in your Q1 estimate. The Income Tax Act recognises this:

• Capital gains arising after the due date of a prior instalment need not be included in that instalment's computation.
• Tax on such gains may be paid entirely in the Q4 instalment (March 15, 2027) without attracting 234C interest for earlier quarters.

Best practice: Do not use this rule as a reason to defer indefinitely. The moment you realise a significant capital gain, compute the tax and pay it immediately as advance tax. A ₹20 lakh LTCG on equity above the ₹1.25 lakh threshold generates ₹2.34 lakh in tax. Deferring this to Q4 while also underpaying on business income risks triggering Section 234B on the combined shortfall.

Common Mistakes That Cost Your Clients Money

1. Relying on TDS credits that have not yet been deposited

TDS your clients deduct in April or May may not be deposited with the tax department until September. The credit appears in AIS only after deposit. Compute Q2 conservatively, including only TDS credits already confirmed in AIS — not deductions you know have been made but cannot yet see.

2. Forgetting FD interest accrued but not yet paid out

Banks report interest accrued on fixed deposits in AIS even when it is reinvested rather than paid to you. A ₹40 lakh FD earning 7.5% generates ₹3 lakh in annual interest. In the 30% bracket, your net tax on this after TDS is ₹60,000 — funds that must come through advance tax, not from interest payouts you have not yet received.

3. Carrying forward last year's instalment amounts

If your business grew 35% this year, last year's advance tax figures are dangerously low. Revise your estimate upward in July and August based on actual income earned so far. Overpaying advance tax is not a problem — you get a refund with interest at 6% per annum. Underpaying attracts 234C at 1% per month.

4. Paying self-assessment tax by mistake

When making the e-payment, always select Advance Tax as the payment type. Selecting Self-Assessment Tax credits the payment to a different accounting head and does not protect you from Section 234C interest, even if the rupee amount is identical. This is one of the most common challan errors CAs encounter.

5. Not accounting for the new tax regime switch

If you or your client switched from the old to the new tax regime for FY 2026-27, your Chapter VI-A deductions are gone. The same ₹20 lakh income that attracted ₹2.5 lakh in tax under the old regime (with deductions) may now attract a different amount under the new regime slab rates. Always recompute the advance tax fresh when a regime change is involved.

Key Takeaways

• Q2 advance tax (45% cumulative) for FY 2026-27 is due September 15, 2026 — six weeks from today. Act now.
• Advance tax is mandatory if net tax liability after TDS exceeds ₹10,000 for the year.
• Senior citizens without business income, and taxpayers under presumptive taxation (44AD/44ADA), are exempt from quarterly instalments.
• Section 234C charges 1% simple interest per month on the shortfall, for 3 months per Q1/Q2/Q3 quarter.
• Capital gains realised after a quarterly due date may be deferred entirely to Q4 without triggering 234C for earlier quarters.
• Always verify TDS credits in AIS before computing your instalment — credits not yet deposited by clients do not reduce your current obligation.

How corpus Helps

corpus's Advance Tax Estimator connects directly to your live books. As you record invoices, expenses, and TDS certificates through the year, corpus continuously updates your estimated full-year tax position and calculates the exact instalment amount due at each quarter — no manual spreadsheets or error-prone formulas needed.

For CA firms managing multiple clients, the bulk advance tax dashboard shows every client's Q2 position on a single screen: estimated annual tax, TDS already credited in AIS, amount payable by September 15, and a risk flag for potential shortfall. You can generate a computation summary for each client with one click, ready to attach to your advisory communication before the deadline.

Log in to corpus today, run the Q2 estimate for your practice and your clients, and ensure no one misses the September 15 deadline.