From Financial Year 2025-26 (Assessment Year 2026-27) under the new tax regime, a major relief has been introduced for individual taxpayers. Due to the enhanced rebate under Section 87A and standard deduction, many taxpayers may effectively have no tax liability up to around ₹12 lakh of income.
Because of this, many people assume that advance tax will never apply if income is near ₹12 lakh. However, in practical situations advance tax liability may still arise. It is also important to understand the concept of marginal relief, which ensures that tax does not increase disproportionately when income slightly exceeds the rebate threshold.
This article explains how advance tax applies in such situations.
Basic Concept of Advance Tax
Advance tax means paying income tax during the financial year itself instead of paying the entire tax while filing the Income Tax Return.
Advance tax becomes applicable when:
Total Tax Liability – TDS – Tax Credits exceeds ₹10,000
If this condition is satisfied, the taxpayer must pay tax in instalments during the year.
Advance Tax Instalment Due Dates
For individuals, professionals and businesses (other than presumptive taxpayers):
| Due Date | Advance Tax Payable |
|---|---|
| 15 June | 15% |
| 15 September | 45% |
| 15 December | 75% |
| 15 March | 100% |
For taxpayers under presumptive taxation (Section 44AD / 44ADA)
- Entire advance tax can be paid by 15 March.
Why Income up to ₹12 Lakh Can Become Tax Free
Under the new tax regime, the tax slabs apply first and then Section 87A rebate reduces the tax liability.
Due to:
- rebate under Section 87A
- standard deduction for salary income
many salaried taxpayers effectively pay zero tax up to around ₹12 lakh of income.
However, this benefit applies only if all conditions of the rebate are satisfied.
Understanding Marginal Relief under Section 87A
When income slightly exceeds the rebate threshold, the tax liability could otherwise increase sharply.
To avoid this situation, marginal relief ensures that the additional tax payable does not exceed the amount by which income exceeds the rebate threshold.
Example
Assume rebate is available up to ₹12,00,000.
Total income = ₹12,05,000
Income exceeding limit = ₹5,000
Without marginal relief, tax as per slab rates may be higher.
Marginal relief ensures:
Tax payable cannot exceed ₹5,000 (the excess income).
Thus the tax increase becomes gradual instead of sudden.
Why Advance Tax May Still Become Applicable
Even though income around ₹12 lakh may appear tax free, advance tax may arise in several practical situations.
1. Income Exceeds ₹12 Lakh Significantly
Marginal relief applies only for a small excess of income above the rebate threshold. Once income increases beyond that range, tax liability increases normally.
Example
Total income = ₹13,50,000
Tax liability after slab calculation may exceed ₹40,000.
If TDS is not sufficient, advance tax liability will arise.
2. Presence of Special Rate Income
Section 87A rebate generally cannot be used to offset tax on certain incomes such as:
- Short-term capital gains under section 111A
- Long-term capital gains
- Lottery or betting income
Example
Salary income = ₹11,80,000
Short-term capital gain = ₹1,00,000
Tax on capital gains = ₹15,000
Even though normal income is near ₹12 lakh, tax on capital gains may create advance tax liability exceeding ₹10,000.
3. Insufficient TDS on Other Income
Certain incomes may not have adequate TDS deducted.
Examples include:
- freelance income
- interest income
- rental income
- business income
Example
Salary income = ₹10,50,000
Interest income = ₹2,20,000
Total income = ₹12,70,000
If TDS is deducted only on salary, the taxpayer may have additional tax payable and advance tax may become applicable.
4. Business or Professional Income
Professionals and business owners generally do not have sufficient TDS deducted.
Example
Professional income = ₹13,00,000
Tax liability = ₹60,000
TDS deducted = ₹5,000
Balance tax payable exceeds ₹10,000.
Therefore advance tax must be paid.
Interest for Non-Payment of Advance Tax
Failure to pay advance tax correctly may attract interest.
Section 234B
Interest for short payment of advance tax.
Condition:
Less than 90% of total tax liability paid before the end of financial year.
Interest rate:
1% per month
Section 234C
Interest for deferment of instalments.
Interest rate:
1% per month.
Practical Tax Planning Tip
Even though income up to ₹12 lakh may appear tax free due to rebate and standard deduction, taxpayers should:
- estimate total income during the year
- consider capital gains and other incomes
- check whether Section 87A rebate actually applies
- consider marginal relief impact
- pay advance tax if tax liability exceeds ₹10,000
Regular review during the financial year helps avoid unnecessary interest liability.
The introduction of higher rebate under Section 87A has significantly reduced tax burden for many individuals, making income around ₹12 lakh effectively tax free in many cases. However, the benefit depends on eligibility conditions and the nature of income.
When income exceeds the rebate threshold or includes special rate income, tax liability may arise. In such cases, if the tax payable exceeds ₹10,000, the taxpayer must comply with advance tax provisions, failing which interest under sections 234B and 234C may apply.
Understanding the role of rebate and marginal relief helps taxpayers plan their taxes more efficiently and avoid unexpected tax liabilities.
Disclaimer
The contents of this article are for general informational purposes only and are intended to provide quick access to tax rate information. Readers are advised to verify the provisions with the Income-tax Act, relevant rules, notifications, and official government sources before making financial decisions.
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