Advance Tax

Advance Tax is the obligation to pay estimated income tax in four quarterly instalments during the financial year itself — not as a lump sum when the annual tax return is filed. Any company, LLP, or individual whose estimated tax liability for the year exceeds ₹10,000 (after TDS credits) must pay advance tax on the prescribed schedule. Underpayment or non-payment attracts interest under Sections 234B and 234C of the Income Tax Act.

Who it applies to

• All companies and LLPs whose estimated annual tax liability (including MAT, if applicable) exceeds ₹10,000 after TDS credits
• Startups that have become profitable — including those claiming Section 80-IAC, where MAT liability may still arise even if normal income tax is zero
• Founders with significant personal income must also pay advance tax individually on salary, capital gains, and other income

A pre-revenue or loss-making startup with no expected tax liability has no advance tax obligation. The obligation begins in the first year the company anticipates taxable income or a MAT exposure above the threshold.

Instalment schedule

The percentages are cumulative totals, not quarterly slices. By 15 September, the company must have paid 45% of the year's estimated liability in total — not 45% of the remaining amount.

Computing the estimate

Estimated advance tax = estimated annual income × applicable tax rate − TDS credits expected for the year

For a startup in its tax-holiday years:

• Normal income tax — typically zero if the Section 80-IAC deduction is claimed and the company is within the IMB-approved period
• MAT — 15% of book profits, which may still apply even during the 80-IAC period (Section 115JB(6) provides relief for IMB-approved companies but the computation must still be performed)
• TDS credits — TDS deducted by clients on invoices offsets the advance tax liability

The estimate should be revised upward or downward at each instalment date as the year's actual performance becomes clearer. Only shortfalls relative to the final assessed liability attract interest.

What most founders miss

Profitability creates immediate advance tax obligations. A startup that is loss-making for several years and becomes profitable in Q2 of a financial year has an advance tax obligation by 15 September of that year — potentially less than one quarter after first recognising a profit. Founders who treat tax as a year-end activity accumulate Section 234C interest without realising it.

MAT creates advance tax obligations even when normal tax is zero. A startup claiming a large Section 80-IAC deduction will have near-zero normal income tax, but if book profits are positive, MAT may still exceed ₹10,000. Failing to include MAT in the advance tax estimate leads to Section 234B interest from 1 April.

The March instalment is the most consequential. If cumulative advance tax paid by 15 March is below 90% of the assessed annual tax, Section 234B interest runs from 1 April until the tax is paid — typically several months after the financial year ends. A meaningful shortfall at 15 March compounds into significant interest by the time the return is filed.

See also

• MAT (Minimum Alternate Tax) — MAT liability must be included in advance tax estimates even when normal tax is zero
• TDS (Tax Deducted at Source) — TDS credits on company invoices directly reduce advance tax due
• Section 80-IAC — the tax holiday reduces normal tax but does not eliminate the need to estimate and pay advance tax on MAT