TDS and Advance Tax Explained

Two ways tax gets paid before you even file your return. TDS is tax deducted by whoever pays you — your employer on salary, a bank on fixed deposit interest above a threshold, or a mutual fund on certain payouts — and deposited directly with the government on your behalf. Advance tax, by contrast, is tax you pay yourself in instalments through the year when TDS alone doesn't cover your full liability.

Law update: Under the Income-tax Act, 2025 (effective 1 April 2026), the entire TDS section structure has been reorganised — see the table below for what changed. Rates and thresholds are unchanged; only the section numbers and how they're referenced has moved.

Common TDS Situations

Salary: Your employer estimates your annual tax and deducts a portion from each month's salary, based on your declared deductions and regime choice.
Fixed Deposit Interest: Banks deduct TDS on FD interest once it crosses a set annual threshold, usually at a flat rate — regardless of your actual income slab.
Property Sale: The buyer is typically required to deduct TDS before paying the seller, for property transactions above a certain value.
Professional Fees: Businesses paying freelancers or professionals above a threshold are required to deduct TDS before making the payment.

The Old TDS Sections Are Now Consolidated

Under the 1961 Act, TDS was scattered across dozens of individual sections — 192 for salary, 194C for contractors, 194J for professional fees, 194I for rent, and so on. The Income-tax Act, 2025 folds all of this into just three sections, with payment-type identified by a code instead of a separate section number.

Old (1961 Act)	New (2025 Act)	Covers
Section 192	Section 392	TDS on salary
Sections 194C, 194J, 194I, and other 194-series	Section 393	Contractors, professional fees, rent, and virtually all other non-salary TDS — identified by payment code, not a separate section
Various TCS sections	Section 394	Tax Collected at Source

The rates and thresholds for each payment type haven't changed — only how they're referenced. This matters mainly if you run payroll or accounting software, which will need updating to the new codes once new-number filing begins.

Why This Consolidation Matters More for Businesses Than Individuals

For most salaried individuals, TDS on salary happens automatically through the employer, and the section reference behind it rarely comes up in day-to-day life. The consolidation matters far more for businesses, accountants, and anyone responsible for deducting TDS on payments to others — a business that previously tracked separate compliance obligations under 194C for contractor payments and 194J for professional fees now works within a single Section 393 framework, distinguishing payment types by code rather than juggling multiple section numbers with slightly different rules and rates each.

Advance Tax

If your total tax liability for the year (beyond what's already covered by TDS) exceeds ₹10,000, you're required to pay advance tax in instalments through the year, rather than one lump sum when filing. This commonly applies to freelancers, business owners, or those with large capital gains — anyone whose income isn't fully captured by an employer's TDS calculations.

Due Date	Cumulative % Payable
By June 15	15%
By September 15	45%
By December 15	75%
By March 15	100%

Missing these instalment deadlines can attract interest charges under the Income Tax Act, even if you eventually pay the full amount by year-end — the schedule itself matters, not just the total. This trips up a lot of first-time freelancers and F&O traders, who often assume that paying the full liability by March 15 is sufficient, without realizing that falling behind the 15%/45%/75% checkpoints earlier in the year can still trigger interest on the shortfall for that period.

A Worked Example: Advance Tax for a Freelancer

Say a freelancer estimates their total tax liability for the year at ₹1,00,000, with no TDS being deducted on their freelance income (a common situation if clients don't cross the TDS threshold on individual payments). By June 15, they need to have paid at least ₹15,000 (15% of ₹1,00,000). By September 15, cumulative payments need to reach ₹45,000. By December 15, ₹75,000. And by March 15, the full ₹1,00,000. If this freelancer pays nothing until December and then tries to pay the full amount at once, they'd owe interest on the shortfall for the June and September checkpoints, even though the year-end total ends up correct.

Getting a Refund

If TDS deducted through the year turns out to be more than your actual tax liability — common when banks deduct TDS on FD interest at a flat rate regardless of your slab — you can claim the difference back as a refund when filing your ITR.

A common scenario: if your total income falls in the 5% slab but the bank deducted flat TDS on your FD interest, filing your ITR gets you back the difference between what was deducted and what you actually owe. This is one of the most common reasons people with modest incomes still benefit from filing even when their overall tax liability is low or zero.

Common Mistakes to Avoid

Assuming TDS alone covers everything: Employer TDS covers salary income, but additional income like capital gains, freelance work, or rental income often isn't captured, potentially triggering an advance tax obligation separately.
Paying advance tax in one lump sum at year-end: Even if the full amount is paid by March 15, missing the earlier 15%/45%/75% checkpoints can still attract interest on the shortfall for those periods.
Not submitting Form 15G/15H when eligible: Those with income below the taxable limit who don't submit this form to their bank end up with unnecessary TDS deducted on FD interest, requiring a refund claim to get it back later.
Forgetting to claim excess TDS as a refund: Assuming TDS deducted is simply lost, rather than realizing it can be claimed back through the ITR if it exceeds actual liability.

Key Takeaway: TDS is deducted by the payer and deposited with the government on your behalf. Advance tax applies if your remaining liability exceeds ₹10,000 for the year, paid in scheduled instalments — missing the interim checkpoints can trigger interest even if the full amount is eventually paid. Excess TDS can be claimed back as a refund through your ITR, and Form 15G/15H can help avoid unnecessary TDS deduction in the first place for those below the taxable threshold.

Frequently Asked Questions

Do salaried employees need to pay advance tax separately?

Usually not, if your employer's TDS already covers your full salary-based liability. But if you have significant additional income — like capital gains, rental income, or interest — beyond what your employer accounts for, you may still owe advance tax on that portion.

How can I avoid TDS on FD interest if my income is below the taxable limit?

You can submit Form 15G (or Form 15H for senior citizens) to the bank at the start of the financial year, declaring that your income is below the taxable threshold — this instructs the bank not to deduct TDS on your interest income.

How long does an income tax refund typically take?

Refunds are usually processed within a few weeks to a couple of months after your ITR is filed and verified, credited directly to your bank account — though timelines can vary depending on the complexity of the return and any manual review needed.

What if I underpay my advance tax instalments?

Underpaying against the required cumulative percentage by each due date typically attracts interest charges on the shortfall, calculated from the due date until the amount is actually paid.

How does the new Section 393 identify different payment types without separate sections?

Instead of a unique section number for each payment category (like the old 194C, 194J, 194I), the new structure uses payment-type codes within Section 393 to distinguish between contractor payments, professional fees, rent, and other categories — the underlying rates and thresholds for each stay the same.