Advance Tax Provisions in India: Calculation, Rates and What Changed Under the Income Tax Act 2025

Companies miss advance tax instalments in the same way every year. The June 15 payment gets deprioritised because Q1 results are not finalised. September comes and the cumulative 45% has not been reached because only 15% went out in June. By March 15, the company is paying 100% in one shot and wondering why the final tax computation shows interest under two separate provisions simultaneously.

Both Section 234B and Section 234C can result in interest  at 1% per month. Both arrive in the final tax working as additions that nobody planned for. And both are entirely avoidable if the quarterly advance tax estimates are built carefully from the first instalment rather than treated as provisional payments that will sort themselves out by year end.

The advance tax provisions in India are now contained in Sections 403 to 410 of the Income Tax Act 2025, which replaced the Income Tax Act 1961 from April 1, 2026. The instalment schedule has not changed. The threshold has not changed. The rates are largely the same. What changed is the section numbers throughout, and the section numbers matter because every tax opinion, board resolution, and CA certificate referencing the old Act needs updating. Sections 207 to 219 of the 1961 Act are now Sections 403 to 410 of the 2025 Act. Interest provisions that were Sections 234B and 234C are now Sections 424 and 425.

The changeover didn’t happen in the middle of the financial year. Payments relating to income earned before 1 April 2026 remain under the 1961 Act. That means the March 15, 2026 advance tax instalment was made under the old law, while the June 15, 2026 instalment was the first under the Income Tax Act 2025.

What Are the Advance Tax Provisions and Who Must Pay?

The advance tax provisions apply once your estimated tax liability, after adjusting for TDS and TCS, crosses ₹10,000 for the year. For most businesses, that means paying tax in four instalments. Only resident senior citizens without business or professional income are exempt.

The Rs. 10,000 threshold is calculated on net tax liability, not on turnover or revenue. A company with large TDS deductions on receipts may technically fall below the threshold on net liability. In practice, most operating companies cross it before the first instalment date. The relevant figure is estimated tax for the full year, not tax on income earned to date.

Payment is made online through the e-filing portal under Challan 280, code 100 for Advance Tax. The assessment year entered must be the year following the financial year being covered. A company paying advance tax for Tax Year 2026-27 selects Assessment Year 2027-28. Getting this wrong is fixable within 7 days through the portal’s online challan correction feature for assessment year changes. After 7 days, the correction requires a different process and creates credit that does not automatically attach to the right year.

What Is the Instalment Schedule Under the Advance Tax Provisions?

The advance tax provisions instalment schedule under Section 408 of the Income Tax Act 2025 requires companies to pay at least 15% of estimated annual tax liability by June 15, cumulative 45% by September 15, cumulative 75% by December 15, and 100% by March 15. The cumulative percentages are the trap. Missing them at any instalment date triggers Section 425 interest on the shortfall for that quarter.

The cumulative nature of the percentages is where most companies create their own interest liability. Paying 15% in June and another 15% in September looks like two instalments paid. It is not 45% cumulative. The September shortfall of 15% attracts Section 425 interest for three months at 1% per month on the shortfall amount. A company with Rs. 1 crore in annual tax liability has a Rs. 15 lakh shortfall at September. Three months of interest on that shortfall is Rs. 45,000. Entirely avoidable.

If an instalment date falls on a Sunday or public holiday, payment on the next working day is treated as timely. This does not mean payments can be scheduled for the due date itself. Portal slowdowns, banking delays, and processing timelines mean the effective last safe day is one working day before the due date.

How Is Advance Tax Calculated for a Private Limited Company?

Advance tax calculation for a Private Limited Company works backwards from an estimated annual tax liability. Estimate the full year profit. Apply the applicable corporate tax rate. Add surcharge and cess. Deduct TDS and TCS already credited or expected during the year. The result is the advance tax liability to be distributed across the four instalments at the cumulative percentages. The estimate is revised at each instalment date based on actuals to that point.

The tax rate depends on which regime the company is under.

A domestic company with turnover not exceeding Rs. 400 crore in FY 2023-24 pays a base rate of 25%. Surcharge is 7% on the tax amount where income is between Rs. 1 crore and Rs. 10 crore, and 12% where income exceeds Rs. 10 crore. Health and education cess of 4% applies on tax plus surcharge. Effective rate for a company with Rs. 5 crore income: approximately 29.12%.

The concessional regime under Section 115BAA reduces the effective corporate tax rate to about 25.17%. In return, companies have to forgo specified deductions and exemptions. Because the choice cannot be reversed, it should be based on careful tax modelling rather than the lower rate alone.

MAT is designed to ensure that companies with substantial book profits still pay a minimum level of tax. From 1 April 2026, the rate is 14%, reduced from 15% by the Finance Act 2026. If MAT exceeds the normal tax liability, advance tax should be based on the MAT amount instead.

A worked example for clarity. A Private Limited Company under Section 115BAA estimates Rs. 10 crore profit for Tax Year 2026-27. Base tax at 22% is Rs. 2.2 crore. Surcharge at 10% of that is Rs. 22 lakh. Cess at 4% of tax plus surcharge is Rs. 8.88 lakh. Total estimated tax: approximately Rs. 2.51 crore. TDS expected on receipts during the year: Rs. 50 lakh. Advance tax liability: Rs. 2.01 crore.

• June 15 payment: Rs. 30.15 lakh (15% of Rs. 2.01 crore).
• September 15 payment: Rs. 60.30 lakh to bring cumulative to 45%.
• December 15 payment: Rs. 60.30 lakh to bring cumulative to 75%.
• March 15 payment: Rs. 50.25 lakh to reach 100%.

If actuals by September show the profit estimate was too low or too high, the September instalment is revised accordingly. The earlier underpayment attracts Section 425 interest only to the extent the June payment fell short of 15% of the revised annual liability. This is the revision mechanism that makes advance tax estimates dynamic rather than fixed in June.

What Is the Tax Rate for Foreign Companies in India?

The corporate tax rate for foreign companies in India is 35% on all taxable income, irrespective of income level. Surcharge applies at 2% where income exceeds Rs. 1 crore but does not exceed Rs. 10 crore, and 5% where income exceeds Rs. 10 crore. Health and education cess at 4% applies on tax plus surcharge. For a foreign company with income above Rs. 10 crore, the effective rate is approximately 43.68%.

That 43.68% sits against 25.17% for a domestic subsidiary under Section 115BAA. The difference is roughly 18 percentage points on the same profits. For a foreign company choosing between a Branch Office, which is taxed as a foreign company, and an Indian subsidiary, which is taxed as a domestic company, this rate differential is a material financial consideration, not an administrative one.

Foreign companies with royalty and fee for technical services income received from the Government of India or an Indian company have a different rate. Section 115A of the 1961 Act taxes these categories at 20%, which carries forward under the corresponding provisions of the 2025 Act. Where a DTAA exists and the treaty withholding rate on these categories is lower than 20%, the treaty rate applies. Under the India-Japan DTAA, royalties are taxed at 10%. Under the India-UK DTAA, also 10%. The Indian payer deducts TDS at the applicable rate, and where TDS covers the full liability, no separate advance tax filing is required by the foreign company for that income stream.

Foreign companies are subject to the same advance tax provisions and the same instalment schedule as domestic companies. The dates are identical. The calculation methodology is the same. The base rate is the only variable that differs. A foreign Branch Office with India profits of Rs. 5 crore calculates advance tax at 35% base plus 2% surcharge plus 4% cess, arriving at an effective rate of approximately 37.96% on those profits, distributes across the four instalment dates, and pays accordingly.

How Is Foreign Tax Calculated for Different Categories of India-Source Income?

Foreign tax calculation for a company earning income in India depends on the category of income, the applicable tax rate, and whether a DTAA applies. Business profits attributable to a PE are taxed at the foreign company rate of 35% plus surcharge and cess. Royalties and fees for technical services without a PE are taxed at 20% under domestic law or at the applicable DTAA withholding rate. Capital gains are taxed based on the asset type, holding period, and whether the transaction is on a recognised exchange.

Business profits through a PE are the most common category for foreign companies with physical India presence. The PE must maintain separate books, and head office expenses allocated to the PE are deductible on a reasonable basis. Advance tax is payable on estimated PE profits at the standard foreign company rate across the four instalment dates.

Dividends received from Indian companies are taxed in the foreign shareholder’s hands at 20% under domestic law, subject to lower DTAA withholding rates. The Indian company paying the dividend deducts TDS before remittance. Where TDS covers the full liability, no separate advance tax arises for the foreign shareholder.

Capital gains on Indian assets: the Finance Act 2024 revised rates apply. Short-term capital gains on listed securities are now taxed at 20% (increased from 15%). Long-term capital gains on listed securities at 12.5% without indexation, indexation having been removed from July 23, 2024. Capital gains on unlisted shares: short-term at the applicable slab rate for foreign companies (which is the 35% rate), long-term at 10% without indexation. Capital gains income is included in the advance tax estimate in the quarter the gain arises, not spread across all four instalments.

DTAA credit is claimed in the final return, not against advance tax. The advance tax provisions require payment based on estimated Indian tax liability. The relief for double taxation is applied when the return is filed. A foreign company should not reduce its advance tax payments in anticipation of DTAA credit that has not yet been calculated and documented.

What Happens When Advance Tax Is Not Paid or Is Underpaid?

Two provisions run simultaneously when advance tax is short.

Section 424 of the Income Tax Act 2025 (Section 234B of the 1961 Act) charges interest at 1% per month from April 1 of the assessment year where total advance tax paid is less than 90% of the assessed tax. This runs until the date of actual payment or the date of regular assessment.

Section 425 (Section 234C of the 1961 Act) charges 1% per month for 3 months on each of the first three instalment shortfalls, and 1% for 1 month on the fourth instalment shortfall. The calculation is on the difference between what should have been paid cumulatively at each date and what was actually paid.

Both are self-assessed. The company calculates the interest and includes it in the final payment. Under-calculation of self-assessed interest is picked up during scrutiny assessment and adds to the final demand.

There is one relief provision worth knowing. Where the shortfall in any instalment is due to underestimation of capital gains or income from a new business or profession commenced after the September instalment, the interest under Section 425 on that specific shortfall is not charged provided the shortfall is paid in the immediately following instalment. This provision has narrow applicability but is relevant for companies that receive unexpected capital gains in Q3.

Conclusion

The advance tax provisions in India have not fundamentally changed under the Income Tax Act 2025. The dates are the same. The cumulative percentages are the same. The interest rate is the same. What changed is the section numbering, the MAT rate reduction to 14%, and the transition mechanics for income straddling the April 1, 2026 commencement date.

For Private Limited Companies, the discipline that eliminates advance tax interest is simple: build a serious profit estimate in April, distribute the liability across the four instalments at the right cumulative percentages, revise at each instalment based on actuals, and pay before the due date rather than on it. For foreign companies, the 43.68% effective rate for income above Rs. 10 crore against 25.17% for a Section 115BAA domestic subsidiary is a number that belongs in every India entry structure conversation, not just the advance tax calculation.

Corporate Legit Consulting LLP advises foreign companies and their Indian subsidiaries on advance tax provisions, corporate tax rate structuring, Section 115BAA eligibility assessment, MAT modelling, DTAA credit planning, quarterly advance tax estimates, and interest mitigation under Sections 424 and 425 of the Income Tax Act 2025. Reach out to know more.