Guide · Costs and taxes · Updated 2026-09-18

Advance tax on a trading book: the ladder is cumulative, so a short June instalment is priced in June

A salaried person almost never meets the advance tax schedule. An employer deducts tax monthly at the correct running rate and the year reaches the return already settled. The schedule exists for everyone else, and a trading business is the purest case: no deductor, no withholding on trading profit, and a liability to be estimated and remitted by the person who earned it.

That would be manageable if the estimate were about the past. Every one of the four targets is a percentage of the full year's tax, a number that does not exist on 15 June and is not reliably knowable on 15 December.

Why the state does not wait for the return

Section 403 of the Income-tax Act 2025, carrying forward section 207 of the 1961 Act, makes tax payable in advance during the year on the current income of that year. Section 404, replacing section 208, sets the entry condition: advance tax is payable where the tax for the year comes to ten thousand rupees or more after reducing tax deducted at source, tax collected at source, and the reliefs and credits available. Below that figure nothing is due and no deferment interest can arise.

There is one carve out, and it is repeatedly misread. A resident individual aged sixty or more at any time in the year who has no income under the head profits and gains of business or profession need not pay advance tax. Trading profit treated as business income is precisely that head, so a seventy year old running an F&O book is inside the schedule like anyone else. The exemption turns on the absence of business income, not on age.

The ladder is cumulative, and that is the whole mechanism

Section 408(1) sets four dates. The wording that decides everything downstream is that each instalment is a stated percentage of the advance tax payable, less the amounts already paid. The percentage is of the year, not of the quarter.

Read incrementally the schedule looks like 15, 30, 30 and 25. Read as the statute writes it, September asks whether 45 percent of the whole year is in, December whether 75 percent is, and March whether all of it is. A trader who pays 15 percent in June and thinks of September as owing a further 15 has misread the second date by a factor of two.

The statute under which you are paying changed on 1 April 2026

The Income-tax Act 2025 came into force on 1 April 2026 and applies to tax year 2026-27 onward. It also replaces the previous year and assessment year pair with a single tax year. Income earned between 1 April 2026 and 31 March 2027 is income of tax year 2026-27 and is governed by the new Act. Income of the year ended 31 March 2026 remains under the 1961 Act, assessed for assessment year 2026-27.

Both statutes are therefore live at once, and for advance tax the split runs through the calendar. The instalments paid on 15 June and 15 September 2026 are 2025 Act instalments. The return being filed now on the year ended 31 March 2026 is a 1961 Act return. A bare section number without a year attached is half an answer.

The substance is remarkably stable. Dates, cumulative percentages, tolerance gates, the ten thousand rupee entry point and the 90 percent short payment test all survive intact. The one presentational change worth knowing sits in section 425, where the deferment charge appears as a flat 3, 3, 3 and 1 percent column rather than as one percent a month. The arithmetic is identical; the table is the answer rather than the input.

The exclusion of a speculative business from the presumptive scheme, which section 44AD(6) stated expressly, continues in substance under the consolidated section 58, and the five year consequence of opting out survives at section 58(7). We are not naming a sub-section number for the speculative exclusion in the 2025 Act, because it could not be established against the enacted text from the sources available here and an invented number is worse than an honest gap. Confirm it against the Act. The mechanism is worked in full in our guide to presumptive taxation for traders.

Deferment interest is priced at the date, not at the year end

Section 425(1) computes interest on the amount by which payments to a date fall short of that date's cumulative target. The rate column reads 3 percent for each of the first three dates and 1 percent for the last. The 1961 Act expressed the identical charge as one percent a month for three months, and one month for March.

Section 425(2) supplies the tolerance, and its drafting is the detail most explainers lose. The assessee shall not be liable to pay any interest under sub-section (1) if payments by 15 June reach 12 percent of the tax due on the returned income, or if payments by 15 September reach 36 percent. That is a gate, not a discount. Clear it and the charge for that date vanishes. Miss it and the shortfall is measured from 15 or 45 percent, with no credit for the tolerance you nearly reached.

Note what happens after September. The statute grants a margin in the two quarters where an estimate is most obviously a guess and withdraws it in the two where it assumes you should know. For most businesses that holds, because the second half resembles the first. For a trading book it is backwards: the estimate does not get easier as the year runs, and a December producing most of the year's income arrives at a date with no margin.

One further asymmetry is worth holding. Deferment interest is measured against tax due on the returned income; short payment interest against assessed tax. If an assessment raises your income the short payment charge recomputes upward, while the deferment charge does not move, being pegged to the return.

A year that arrives unevenly, worked

Take a trader with no other income and no tax deducted at source, whose non-speculative book lands late. The figures are illustrative and the year's final liability after credits is taken as 1,20,000 so the arithmetic stays visible.

By 15 June the book has produced very little, so the trader annualises what has happened and pays 6,000. By 15 September activity has picked up and a further 30,000 goes in. The final calendar quarter is the strongest of the four, so by 15 December the trader is comfortably ahead after paying 60,000. The balance goes in on 15 March.

Look at what this trader did right. The whole year's tax was paid before the year ended, the 90 percent test was passed with room to spare, and nothing was filed late. The charge exists purely because two early instalments were short against a target computed on a full year figure that could not have been known when they fell due.

Now the same year with no payment at all until 15 March, when the whole 1,20,000 goes in.

All four rows pay the same tax by the same date. The spread between them is entirely the schedule. The third breaks down as 3 percent of 18,000, then of 54,000, then of 90,000, the March instalment being met in full. The fourth is the same behaviour as the third and costs nothing, because the presumptive filer has one date and met it.

The relief the statute grants, and the one it withholds from a trader

The legislature did recognise that some income cannot be estimated in advance. Deferment interest is not charged where the shortfall arose from an under estimate of, or failure to estimate, certain classes of income, provided the tax on it is paid in the remaining instalments or, where none remain, by 31 March.

The last two rows are the trader's specific difficulty, stated precisely. The relief is drafted around the character of the income, not around how hard it was to forecast. An investor whose portfolio throws off a large gain in February gets it. A trader whose derivatives book does the identical thing in the identical month does not, because business income from a continuing business is not on the list. The income least amenable to estimation in the whole schedule is the one the relief was not written for. A first year trader does get it, once, which is worth not misremembering in year two.

Short payment interest is a separate test on the same year

Section 424, replacing section 234B, asks whether advance tax reached 90 percent of assessed tax. If it did not, simple interest runs at one percent for every month or part of a month from 1 April following the tax year until total income is determined, on the difference between the two. Self assessment tax paid before determination stops the clock on the amount paid.

The two charges are independent and both can run on one year. Section 408(3) is what makes the year end date meaningful: any amount paid as advance tax by 31 March is treated as advance tax of that year, so a payment on 28 March keeps the short payment charge at bay. It does not rescue the 15 March instalment, so the final deferment charge still applies. The two dates sit sixteen days apart and do different jobs.

The presumptive path collapses the schedule to one date

Section 408(2) requires an assessee who declares profits on a presumptive basis under section 58(2) to pay the whole of the advance tax by 15 March, and section 425(3) prices any shortfall there at one percent. Under the 1961 Act the same structure sat at sections 211(1)(b) and 234C(1)(b) for a section 44AD declarant.

For most small businesses this is a modest convenience. For a trader it is larger, because what it removes is exactly what a trading year cannot supply: three mid year estimates of a number the year has not finished producing. The deemed profit is a function of turnover, knowable from contract notes as the year runs, so the March figure is a computation rather than a forecast.

That is not a reason to elect into it. The route is open only to the non-speculative book, the deemed percentage is a floor on turnover that scales with activity rather than with capital, and stepping back out starts a five year ineligibility window. Those are worked through in our guide to the presumptive scheme for traders, alongside the turnover figure the question turns on in how derivatives turnover is computed. The narrower point is that the advance tax schedule belongs in that comparison and is usually left out of it.

Estimating a year you cannot forecast

The schedule cannot be satisfied by a forecast, because no honest forecast of a trading year exists in June. It can be satisfied by a method, and the method is arithmetic on what has already happened.

Compute the running liability, not the running profit. Each date tests tax after credits. Profit to date is an input. A trader tracking profit and not tax finds the gap on 15 December.

Re-estimate the full year at each date, upward. If realised profit to December already exceeds the estimate the year opened with, the December target has moved with it, and the earlier payments are measured against the final returned figure rather than the opening one.

Treat 12 percent as the June minimum and 36 as the September minimum. They are the cheapest insurance in the provision, because clearing them removes the charge for that date entirely.

Treat December as the date with no margin, and 15 March as the real year end. The December charge starts at the first rupee below 75 percent. The 31 March date preserves only the short payment position; sixteen days earlier is the one that closes the last deferment charge.

Where this goes wrong in practice

Reading the schedule as four quarterly bills. The most common error, and the one that produces the September and December shortfalls. The target is a running total of the year.

Believing a full year payment cures everything. It cures the short payment test and nothing else. The deferment charge is on the record by the time the year closes.

Treating 12 and 36 percent as the real targets. They are gates. A rupee below one exposes the whole shortfall from 15 or 45 percent, so a trader aiming at 12 and landing at 11 is worse off than one who aimed at 15.

Expecting the capital gains relief to cover trading income. It does not, unless the trading is taxed as capital gains or the business arose that year.

Citing a 1961 Act section as current law. Sections 211, 234B and 234C govern earlier years, not the instalments being paid now. A working paper that names neither the year nor the statute cannot be checked later.

What the schedule is actually asking

Advance tax is a demand for a running estimate of the year, priced four times. Every other obligation a trader meets at filing looks backward and can be reconstructed. This one looks forward and cannot be, which is why it is the only part of the tax year that has to be handled while the year is still happening.

That makes it a bookkeeping question rather than a tax question. A trader who knows the realised result and the cost stack to date knows the running liability, and the running liability is the whole input. Reconstructing the year in July from a statement built for another purpose is estimating backwards through four dates that have already closed. The tax is the same either way. The interest is not.