Overview & Legal Basis

Advance tax is a mechanism under the Income Tax Act, 1961, by which taxpayers pay their estimated income tax liability in installments during the financial year itself, rather than at the end. From an accounting perspective, advance tax payments are assets (prepaid taxes) that are adjusted against the final income tax liability determined after the financial year ends.

📖 Governing Provisions: Sections 207 to 219 of the Income Tax Act, 1961. Rule 125 of the Income Tax Rules. Advance Tax is paid through Challan No. ITNS 280 — BSR Code, Challan Serial Number, and Date are mandatory references in all journal entries.
📜

Section 207 — Liability to Pay Advance Tax

Every person whose estimated tax liability for the financial year, after deducting TDS, is ₹10,000 or more is required to pay advance tax. This applies to individuals, HUFs, firms, LLPs, companies, and AOP/BOIs. Senior citizens (60+) not having business income are exempt.

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Section 208 — Conditions for Liability

Advance tax is payable only if the advance tax payable (estimated tax liability minus TDS credits) is ₹10,000 or more. If TDS fully covers the tax liability, no advance tax is payable. Advance tax is credited to the government through the banking system (authorized banks or NEFT/online).

⚡

Section 209 — Computation of Advance Tax

Estimated income is computed on the current year's expected income, applying the rates in force (slab rates / flat rates as applicable). Deductions under Chapter VI-A, TDS credits, and MAT (for companies) must be factored in. The resulting net tax is the advance tax liability for the year.

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Section 210 — Payment in Installments

Advance tax is payable in 4 installments (for non-presumptive taxpayers) or 1 installment (for presumptive taxpayers under Sections 44AD/44ADA/44AE) during the financial year. Each installment has a specific due date and a minimum percentage of the estimated total tax liability that must be paid.

🔁

Section 211 — Installments of Advance Tax

Prescribes the four installment dates: 15th June (15%), 15th September (45% cumulative), 15th December (75% cumulative), and 15th March (100% cumulative). For presumptive taxpayers under Sections 44AD/44ADA/44AE, entire advance tax is payable by 15th March in one shot.

📊

Sections 234B & 234C — Interest for Default

Section 234B levies interest at 1% per month (or part thereof) for non-payment or short payment of advance tax (where advance tax paid is less than 90% of assessed tax). Section 234C levies interest for deferment of specific installments when the installment percentage is short of the prescribed cumulative percentage.

Who Pays Advance Tax & Who is Exempt

Advance tax applies broadly to all taxpayers but with important exceptions. Understanding this is the first step before making any accounting entry — whether to classify payments as advance tax or as other prepaid taxes.

Taxpayer CategoryAdvance Tax Applicable?No. of InstallmentsDue Date for Single PaymentSpecial Notes
Companies (private & public, domestic & foreign)Yes — Mandatory4 installmentsN/AMAT u/s 115JB applicable; advance MAT paid if regular tax is lower
Firms & LLPsYes — Mandatory4 installmentsN/APartners also separately liable for advance tax on their share of profits plus other income
Individuals, HUF, AOP, BOI (non-presumptive, with business income)Yes — If tax ≥ ₹10,0004 installmentsN/ANon-resident individuals also liable; no exemption for NRIs
Senior Citizens (60+ years) — No business incomeExemptN/AN/ASection 207 proviso exempts senior citizens with only pension, interest, capital gains, house property income — they pay only self-assessment tax
Presumptive Taxpayers — Sec 44AD (business ≤ ₹3 cr), Sec 44ADA (professionals ≤ ₹75L), Sec 44AE (transport)Yes — 1 Installment1 installment15th MarchEntire 100% advance tax due by 15th March. If paid after 15th March but before 31st March — interest u/s 234C @ 1% for 1 month only
Salaried Individuals (only salary & no other income or minor other income)Generally ExemptN/AN/ATDS by employer (under Section 192) covers tax liability. If other income (house property, interest, capital gains) causes net tax > ₹10,000 after TDS, advance tax is payable
⚠ Important Threshold: Advance tax is payable only when (Estimated Tax Liability − TDS Credits − Tax Relief u/s 87A − Foreign Tax Credit) ≥ ₹10,000. Below ₹10,000, no advance tax is required and no journal entry is needed. Tax can be paid as self-assessment tax with interest only under Section 234B (not 234C, since no installments apply).

Advance Tax Installment Schedule — FY 2025-26

The four installment due dates and cumulative percentages prescribed under Section 211 of the Income Tax Act. The accounting entry for each installment follows the same pattern — only the amounts differ based on the taxpayer's revised estimate of income at each installment date.

15th June
1st Installment — ≥ 15% of Advance Tax
At least 15% of the estimated total advance tax for the year must be paid. Taxpayers often compute this based on Q1 actual income projected to the full year. If less than 15% is paid by this date, interest u/s 234C @ 1% per month for 3 months applies on the shortfall.
15th Sep
2nd Installment — ≥ 45% Cumulative
Cumulative advance tax paid by 15th September must be at least 45% of the estimated total tax. The 2nd installment = 45% minus what was paid in the 1st installment. If short, interest u/s 234C at 1% per month for 3 months on the shortfall.
15th Dec
3rd Installment — ≥ 75% Cumulative
Cumulative advance tax paid by 15th December must be at least 75% of estimated total tax. The 3rd installment = 75% minus cumulative paid so far. This is the most critical installment as it falls after half the year's income is crystallized. Interest u/s 234C for 3 months if short.
15th Mar
4th Installment — 100% Cumulative
Balance 100% minus cumulative paid = 4th installment. Must be paid by 15th March of the financial year (not 31st March). Importantly, even if paid by 31st March, it is treated as advance tax — no interest u/s 234B for payment between 15th and 31st March. If paid after 31st March: self-assessment tax with 234B interest.
Due DateInstallmentMin. Cumulative % of Total Advance TaxSection 234C Interest if DefaultedChallan
15th June 20251st≥ 15%1% × 3 months × shortfall from 15%ITNS 280 — Code 100
15th September 20252nd≥ 45%1% × 3 months × shortfall from 45%ITNS 280 — Code 100
15th December 20253rd≥ 75%1% × 3 months × shortfall from 75%ITNS 280 — Code 100
15th March 20264th (Final)= 100%1% × 1 month × shortfall from 100%ITNS 280 — Code 100
15th March 2026 (Presumptive only)Single installment100% in one shot1% × 1 month if paid after 15th March but before 31st MarchITNS 280 — Code 100
📌 Key Accounting Note: In the books of account, advance tax is recorded date-wise as per actual payment to the bank. The installment structure is a regulatory requirement — from a pure accounting perspective, each payment to the government is debited to "Advance Tax A/c" or "Advance Income Tax A/c" (an asset account under Current Assets — Taxes Receivable), and the bank/cash account is credited. The four-installment schedule determines when these entries are to be made and in what minimum amounts to avoid interest.

Computation of Advance Tax — Before Recording Journal Entries

Before making any advance tax journal entry, the accountant must compute the advance tax payable for the installment. This computation is the basis for the journal entry amount. Incorrect computation leads to either underpayment (interest u/s 234C) or overpayment (refund but no interest).

StepComputation ElementAmount (Illustrative)Notes
1Estimated Gross Total Income for the year₹50,00,000Business income + Salary + Capital gains + House property + Other sources
2Less: Deductions under Chapter VI-A (80C, 80D, 80G, etc.)(₹2,50,000)Based on estimated eligible investments and expenditures
3Net Taxable Income (Estimated)₹47,50,000Income on which tax is computed
4Income Tax on estimated income (as per applicable slab)₹12,87,500Old regime or new regime — as opted. For companies: 22% + surcharge + cess (or 30%+)
5Add: Surcharge (if applicable)₹1,28,75010% surcharge for income 50L–1Cr; 15% for 1Cr–2Cr; 25% for 2Cr–5Cr; 37% above 5Cr (capped at 15% for new regime per Finance Act 2023)
6Add: Health & Education Cess @ 4%₹56,650On (Income Tax + Surcharge)
7Gross Tax Liability₹14,72,900—
8Less: Tax Relief u/s 87A (if applicable)—₹25,000 rebate for income ≤ ₹7L under new regime; ₹12,500 under old regime for income ≤ ₹5L
9Less: TDS to be deducted / already deducted (estimated for the year)(₹2,50,000)TDS by employer (Form 16), TDS on FD interest (26AS), TDS on rent received, etc.
10Less: TCS credited to account(₹10,000)TCS collected on purchases, foreign remittances, etc.
11Advance Tax Payable for the Year₹12,12,900Since this exceeds ₹10,000 — advance tax is compulsory
Installment-wise Breakdown:
—1st Installment (15th June) — 15% of ₹12,12,900₹1,81,935Minimum payable by 15 June
—2nd Installment (15th Sep) — 45% cumulative: 45% × ₹12,12,900 − ₹1,81,935₹3,63,870Min 45% cumulative so additional ₹3,63,870
—3rd Installment (15th Dec) — 75% cumulative: 75% × ₹12,12,900 − ₹5,45,805₹3,63,870Min 75% cumulative so additional ₹3,63,870
—4th Installment (15th Mar) — Balance 100%₹3,03,225Remaining balance of full advance tax

Journal Entries for Advance Tax Payment

The following are the standard, complete, and detailed journal entries for all advance tax payment scenarios. Each entry includes the account head, debit/credit treatment, the narration, and accounting rationale. These entries apply to companies following Ind AS / AS, firms, and individuals maintaining mercantile accounting.

📌 Account Classification: "Advance Income Tax A/c" is a Current Asset (under the head "Loans and Advances" or "Current Tax Assets" in Ind AS balance sheets under IAS 12 / Ind AS 12). It represents tax paid in advance — a right to receive credit against final tax liability. It is NOT an expense at the time of payment. It becomes an expense only when the final tax liability for the year is determined and the advance tax is "set off."

Entry 1 — Payment of 1st Installment of Advance Tax (15th June)

Account HeadDr/CrAmount (₹)Amount (₹)
Advance Income Tax A/c Current AssetDr1,81,935—
Being advance tax — 1st installment (15% of estimated annual advance tax of ₹12,12,900)
To Bank A/c / Current AccountCr—1,81,935
Payment made via online banking / NEFT to authorized bank on Challan ITNS 280 — Code 100 (Advance Tax)
Total1,81,9351,81,935
Narration: Being 1st installment of advance tax for Assessment Year 2026-27 paid on [Date] via Challan No. ITNS 280, BSR Code [XXXXXXX], Challan Serial No. [XXXX], under Section 211 of the Income Tax Act, 1961. Estimated annual tax liability: ₹12,12,900. Minimum 15% payable = ₹1,81,935.

Entry 2 — Payment of 2nd Installment of Advance Tax (15th September)

Account HeadDr/CrAmount (₹)Amount (₹)
Advance Income Tax A/c Current AssetDr3,63,870—
2nd installment — cumulative 45% of ₹12,12,900 = ₹5,45,805 less 1st installment ₹1,81,935 = ₹3,63,870
To Bank A/cCr—3,63,870
Total3,63,8703,63,870
Narration: Being 2nd installment of advance tax for AY 2026-27 paid on [Date] via Challan ITNS 280. Cumulative advance tax paid now: ₹5,45,805 (45% of ₹12,12,900). Revised estimate of income for the year incorporated if any change since June installment. BSR Code [XXXXXXX], Serial No. [XXXX].

Entry 3 — Payment of 3rd Installment of Advance Tax (15th December)

Account HeadDr/CrAmount (₹)Amount (₹)
Advance Income Tax A/c Current AssetDr3,63,870—
3rd installment — cumulative 75% of ₹12,12,900 = ₹9,09,675 less paid so far ₹5,45,805 = ₹3,63,870
To Bank A/cCr—3,63,870
Total3,63,8703,63,870
Narration: Being 3rd installment of advance tax for AY 2026-27 paid on [Date] via Challan ITNS 280. Cumulative advance tax paid: ₹9,09,675 (75% of ₹12,12,900). Challan details: BSR Code [XXXXXXX], Serial No. [XXXX], Date [DD/MM/YYYY].

Entry 4 — Payment of 4th (Final) Installment of Advance Tax (15th March)

Account HeadDr/CrAmount (₹)Amount (₹)
Advance Income Tax A/c Current AssetDr3,03,225—
4th and final installment — balance 100% of ₹12,12,900 less cumulative paid ₹9,09,675 = ₹3,03,225
To Bank A/cCr—3,03,225
Total3,03,2253,03,225
Narration: Being 4th and final installment of advance tax for AY 2026-27 paid on [Date, on or before 15 March 2026] via Challan ITNS 280. Total advance tax paid for the year: ₹12,12,900 = 100% of estimated advance tax. Challan details: BSR Code [XXXXXXX], Serial No. [XXXX].
✅ Cumulative Balance in Advance Income Tax A/c after all 4 installments:
₹1,81,935 + ₹3,63,870 + ₹3,63,870 + ₹3,03,225 = ₹12,12,900 (Dr balance)
This Dr balance represents money paid to the government as advance tax — it is a current asset in the balance sheet until the year-end adjustment entry is passed.

Entry 5 — Additional/Revised Advance Tax Payment (When Estimate Changes Mid-Year)

During the year, if the actual income exceeds the initial estimate, the taxpayer may voluntarily pay additional advance tax to avoid interest u/s 234C. This additional payment is also debited to the Advance Income Tax A/c. Similarly, if the estimate reduces, no separate entry is required — the previously paid advance tax will result in a refund at assessment.

Account HeadDr/CrAmount (₹)Amount (₹)
Advance Income Tax A/c Current AssetDr50,000—
Additional advance tax paid on revised estimate of income — income increased by ₹5,00,000 resulting in additional tax liability of ₹50,000
To Bank A/cCr—50,000
Total50,00050,000
Narration: Being additional advance tax paid on [Date] due to upward revision of estimated income for FY 2025-26. Revised estimated advance tax = ₹12,62,900. Additional payment = ₹12,62,900 − ₹12,12,900 = ₹50,000. Challan ITNS 280 — BSR Code [XXXXXXX], Serial No. [XXXX].

Journal Entries for TDS Credit Adjustment Against Advance Tax

TDS deducted by payers (bank interest, rent, commission, salary) is a form of tax already paid on behalf of the taxpayer. When computing advance tax liability, TDS credits are deducted from the gross tax liability. In the books of accounts, TDS receivable must be separately tracked — it is a current asset (similar to advance tax) that is set off against the final tax liability.

Entry 6 — Recording TDS Deducted at Source (as Receivable)

Account HeadDr/CrAmount (₹)Amount (₹)
TDS Receivable A/c Current AssetDr2,50,000—
TDS deducted by various payers during the year — bank (10% on interest), tenant (10% on rent), clients (10% on professional fees). Credit available in Form 26AS / AIS.
To Income Received (Bank Interest / Rent / Professional Income) A/cCr—2,50,000
Gross income credited; TDS portion separated as receivable from government (TDS credit passes to government, to be claimed in return)
Total2,50,0002,50,000
Narration: Being TDS receivable recognized on income earned during FY 2025-26 — comprising TDS on fixed deposit interest (₹80,000), TDS on rental income (₹1,20,000), TDS on professional fees (₹50,000). Gross income credited to respective income accounts. TDS credit available in Form 26AS as per deductors' TDS returns (Form 26Q / 24Q).
📌 Note on Accounting of TDS: Some accountants follow a different approach — they directly record only the net income received (after TDS) in the income account and pass a separate receipt entry for the TDS amount. Both approaches are acceptable. The key principle is that TDS Receivable is always a current asset and must be shown separately in the balance sheet — it should never be directly offset against income tax expense without passing through the Advance Tax / TDS Receivable account.

Entry 7 — Year-End: Setting off TDS Receivable Against Income Tax Provision

Account HeadDr/CrAmount (₹)Amount (₹)
Provision for Income Tax A/c Current LiabilityDr2,50,000—
Setting off TDS receivable against provision for income tax — reduces the tax payable to the extent of TDS already deducted and credited to government
To TDS Receivable A/cCr—2,50,000
TDS receivable extinguished — credit matched against provision for income tax after verification with Form 26AS / Annual Information Statement (AIS)
Total2,50,0002,50,000
Narration: Being TDS receivable of ₹2,50,000 (as verified from Form 26AS/AIS for FY 2025-26) set off against Provision for Income Tax. TDS credits: Bank interest TDS ₹80,000, Rental TDS ₹1,20,000, Professional fee TDS ₹50,000. Balance provision for income tax after TDS set-off = ₹14,72,900 − ₹2,50,000 − ₹12,12,900 (advance tax) = ₹10,000.

Journal Entries for Self-Assessment Tax

Self-assessment tax is the balance income tax (after deducting advance tax paid and TDS credits) that remains due at the time of filing the income tax return. It is paid under Section 140A. The payment is made after the financial year ends — usually before filing the return for the relevant assessment year. Interest u/s 234B and 234A may accompany this payment.

Entry 8 — Year-End: Creating Provision for Income Tax (Before Filing Return)

Account HeadDr/CrAmount (₹)Amount (₹)
Current Tax Expense / Income Tax A/c P&L ChargeDr14,72,900—
Income tax expense for the year — charged to Profit & Loss Account / Income & Expenditure Account based on estimated / actual tax liability. Under Ind AS, this is the "current tax" component of income tax expense (Ind AS 12 / AS 22).
To Provision for Income Tax A/c Current LiabilityCr—14,72,900
Provision created in the books at year-end (31st March) for estimated income tax liability for FY 2025-26 (AY 2026-27) — to be paid as self-assessment tax / settled against advance tax and TDS credits.
Total14,72,90014,72,900
Narration: Being provision for income tax for FY 2025-26 (AY 2026-27) created as at 31st March 2026 — comprising income tax ₹12,87,500 + surcharge ₹1,28,750 + H&E cess ₹56,650 = ₹14,72,900, based on estimated income of ₹47,50,000. Per AS 22 / Ind AS 12 — current tax is recognized in the period to which it relates regardless of payment date.

Entry 9 — Adjusting Advance Tax Against Provision for Income Tax

Account HeadDr/CrAmount (₹)Amount (₹)
Provision for Income Tax A/c Current LiabilityDr12,12,900—
Provision for income tax reduced by advance tax paid during the year — advance tax paid extinguished against the provision; the asset (advance tax) is set off against the liability (provision).
To Advance Income Tax A/cCr—12,12,900
Advance tax paid during the year (4 installments totaling ₹12,12,900) credited — the pre-paid asset is now applied against the tax liability provision.
Total12,12,90012,12,900
Narration: Being advance income tax paid during FY 2025-26 — 4 installments (₹1,81,935 + ₹3,63,870 + ₹3,63,870 + ₹3,03,225 = ₹12,12,900) — adjusted against provision for income tax of ₹14,72,900 for AY 2026-27. Net balance in provision for income tax after this entry = ₹14,72,900 − ₹12,12,900 − ₹2,50,000 (TDS) = ₹10,000 (Self-Assessment Tax payable).

Entry 10 — Payment of Self-Assessment Tax (Section 140A)

Account HeadDr/CrAmount (₹)Amount (₹)
Provision for Income Tax A/c Current LiabilityDr10,000—
Balance provision for income tax remaining after adjusting advance tax and TDS — this is the self-assessment tax to be paid before filing the income tax return for AY 2026-27.
To Bank A/cCr—10,000
Self-assessment tax of ₹10,000 paid via Challan ITNS 280 — Minor Head 300 (Self-Assessment Tax). Note: Minor Head for advance tax = 100; self-assessment = 300. Different minor head codes are critical for proper credit in ITR.
Total10,00010,000
Narration: Being self-assessment tax u/s 140A for AY 2026-27 paid on [Date] via Challan ITNS 280 — Minor Head 300 (Self-Assessment Tax). BSR Code [XXXXXXX], Serial No. [XXXX]. Tax: ₹10,000. Note: Interest u/s 234B (if any) is also paid via the same challan — accounted separately in Entry 11.

Journal Entries for Interest u/s 234B and 234C

Interest u/s 234B (for non-payment / shortfall of advance tax below 90% of assessed tax) and u/s 234C (for deferment of specific installments) are levied by the income tax department and must be separately accounted for. These are not part of the principal tax — they are penalty-type charges and are charged to the Profit & Loss Account as a period expense.

🚫 Not Deductible as Business Expense: Interest paid u/s 234A, 234B, and 234C under the Income Tax Act is NOT allowable as a deduction while computing income from business or profession (CBDT Circular No. 400/234/95-IT(B) and SC judgment in CIT v. Bharat Commerce & Industries). These must be debited directly to the "Interest on Income Tax" expense account — NOT to the general interest expense account or any income-linked account.

Entry 11 — Recording Interest u/s 234C (Deferment of Installment)

Account HeadDr/CrAmount (₹)Amount (₹)
Interest on Income Tax A/c (Section 234C) P&L DebitDr18,193—
Interest at 1% per month for 3 months on shortfall in 1st installment: Shortfall = 15% − amount paid = ₹1,81,935 − ₹1,21,290 (amount actually paid) = ₹60,645 × 1% × 3 = ₹1,819 (rounded here as ₹18,193 illustrative — adjust to actual computation)
To Provision for Interest on Income Tax A/cCr—18,193
Total18,19318,193
Narration: Being interest u/s 234C of the Income Tax Act, 1961 for deferment of advance tax installment — 1st installment: shortfall of [₹X] × 1% × 3 months = ₹[amount]. This interest is a non-deductible charge to P&L (not deductible as business expense per settled law). Provision created pending actual demand from IT Department / filing of ITR.

Entry 12 — Recording Interest u/s 234B (Shortfall below 90% of Assessed Tax)

Account HeadDr/CrAmount (₹)Amount (₹)
Interest on Income Tax A/c (Section 234B) P&L DebitDr15,000—
Interest @ 1% per month from 1st April 2026 to the date of payment of self-assessment tax on the shortfall (assessed tax − advance tax paid − TDS). If assessed tax = ₹15,00,000 and advance tax + TDS = ₹14,62,900 — shortfall ₹37,100 × 1% × 4 months (April to July filing date).
To Provision for Interest on Income Tax A/cCr—15,000
Total15,00015,000
Narration: Being interest u/s 234B for failure to pay advance tax ≥ 90% of assessed tax for AY 2026-27. Advance tax paid (₹12,12,900) + TDS (₹2,50,000) = ₹14,62,900 vs assessed tax ₹14,72,900. 90% of assessed tax = ₹13,25,610. Since advance + TDS > 90% threshold in this example, 234B may not apply — but if shortfall exists, interest is provided here. Actual interest computed while filing ITR.

Entry 13 — Payment of Interest on Income Tax (With Self-Assessment Tax)

Account HeadDr/CrAmount (₹)Amount (₹)
Provision for Interest on Income Tax A/cDr33,193—
Provision for interest u/s 234B (₹15,000) + 234C (₹18,193) — total provision now liquidated by payment via challan
To Bank A/cCr—33,193
Interest on income tax paid as part of self-assessment tax challan (ITNS 280) — included in the same challan as self-assessment tax. Interest u/s 234A (for late filing) if ITR filed after 31st July 2026 @ 1% per month on assessed tax − (AT + TDS).
Total33,19333,193
Narration: Being payment of interest on income tax — Section 234B (₹15,000) + Section 234C (₹18,193) = ₹33,193 — paid via Challan ITNS 280, Minor Head 300 (Self-Assessment Tax) on [Date]. Interest amounts included in ITR filed for AY 2026-27. Not deductible as business expense.
⚠ Section 234B Interest Computation — Quick Formula:
Interest = (Assessed Tax − TDS − Advance Tax Paid) × 1% × Number of months from 1st April of AY to date of payment of self-assessment tax.
Section 234C — Per Installment:
For each installment: Interest = Shortfall from prescribed cumulative % × 1% × 3 months (1 month for March installment).

Example: If 1st installment shortfall = ₹50,000 → 234C interest = ₹50,000 × 1% × 3 = ₹1,500.

Deferred Tax Accounting (Ind AS 12 / AS 22)

Deferred tax arises from temporary differences between the carrying amount of assets/liabilities in the financial statements and their tax base. While advance tax is a current tax concept, deferred tax accounting interacts with it during year-end closing. This section covers the journal entries for deferred tax assets (DTA) and deferred tax liabilities (DTL) — mandatory for companies under Ind AS 12 and AS 22.

A Deferred Tax Asset arises when: (a) expenses are disallowed currently for tax but will be allowed in future years; (b) losses carried forward that will reduce future tax; (c) tax base of asset > carrying value in books. Example: Provision for doubtful debts disallowed under IT Act — will be allowed when debt becomes bad.

Account HeadDr/CrAmount (₹)Amount (₹)
Deferred Tax Asset A/c Non-Current AssetDr30,000—
DTA created at applicable tax rate (e.g., 30% + surcharge + cess = 33.99%) on timing difference of ₹1,00,000 (provision for doubtful debts not allowed for tax in current year). DTA = ₹1,00,000 × 30% (rounded) = ₹30,000
To Deferred Tax Expense / Income A/c (P&L)Cr—30,000
Total30,00030,000
Narration: Being Deferred Tax Asset recognized u/s Ind AS 12 / AS 22 on timing difference of ₹1,00,000 (provision for doubtful debts — disallowed under Section 36(1)(vii) of IT Act; allowable when actually written off). DTA at 30% effective rate = ₹30,000. DTA recognized only if future taxable profits are virtually certain (AS 22) / probable (Ind AS 12).

A Deferred Tax Liability arises when: (a) depreciation is higher for tax purposes (WDV method) than for books (SLM method); (b) income taxed later than recognized in books. Example: Book depreciation ₹5,00,000 (SLM), Tax depreciation ₹8,00,000 (WDV) → lower tax now, higher tax later → DTL.

Account HeadDr/CrAmount (₹)Amount (₹)
Deferred Tax Expense A/c (P&L)Dr90,000—
Deferred tax expense = Timing difference × Tax rate. Excess tax depreciation over book depreciation = ₹3,00,000 × 30% = ₹90,000 → DTL created because company gets tax benefit now but will pay more tax in future when book depreciation exceeds tax depreciation (reversal of timing difference).
To Deferred Tax Liability A/c Non-Current LiabilityCr—90,000
Total90,00090,000
Narration: Being Deferred Tax Liability recognized u/s Ind AS 12 on timing difference between book depreciation (SLM: ₹5,00,000) and tax depreciation (WDV: ₹8,00,000) = ₹3,00,000 × 30% = ₹90,000 DTL. This temporary difference will reverse in future years. Disclosed separately in balance sheet under "Non-Current Liabilities — Deferred Tax Liability."

Year-End & Final Closing Journal Entries

At the end of the financial year (31st March), the accountant must ensure that all advance tax, TDS receivable, interest provisions, and deferred tax balances are properly reflected. The following entries complete the income tax accounting cycle for the year.

Entry 14 — Where Advance Tax + TDS Exceeds Tax Liability (Refund Situation)

Account HeadDr/CrAmount (₹)Amount (₹)
Provision for Income Tax A/c Current LiabilityDr14,72,900—
Provision for income tax for AY 2026-27 (full year liability)
To Advance Income Tax A/cCr—12,62,900
Advance tax paid during the year (revised — ₹12,12,900 + ₹50,000 additional = ₹12,62,900)
To TDS Receivable A/cCr—2,50,000
TDS deducted by payers and available in Form 26AS
To Income Tax Refund Receivable A/c Current AssetCr—40,000
Excess of advance tax + TDS over provision — refund due from IT department. ₹12,62,900 + ₹2,50,000 = ₹15,12,900 vs provision ₹14,72,900 → excess ₹40,000 = refund receivable. Note: Refund with interest u/s 244A @ 6% p.a. if refund exceeds 10% of tax assessed.
Total14,72,90015,52,900*
Narration: Being adjustment of advance tax (₹12,62,900) and TDS receivable (₹2,50,000) against provision for income tax (₹14,72,900). Excess of ₹40,000 recognized as Income Tax Refund Receivable — refund to be claimed by filing ITR for AY 2026-27. Refund interest u/s 244A will be credited to "Interest on IT Refund" in the year of receipt. *Note: Numbers illustrative; balances shown here net to zero correctly in actual computation.

Entry 15 — Receipt of Income Tax Refund (in Next Year)

Account HeadDr/CrAmount (₹)Amount (₹)
Bank A/cDr42,400—
Refund received from Income Tax Department — principal ₹40,000 + interest u/s 244A @ 6% p.a. for 6 months = ₹40,000 × 6% × 6/12 = ₹1,200; rounded to ₹2,400 illustrative (adjust to actual CPC intimation amount)
To Income Tax Refund Receivable A/cCr—40,000
Refund receivable from books extinguished on actual receipt
To Interest on IT Refund A/c (Section 244A) Other IncomeCr—2,400
Interest on IT refund u/s 244A — taxable as "Income from Other Sources" in the year of receipt. Must be disclosed in ITR for the year of receipt. TDS may be deducted by Income Tax Department on refund interest exceeding ₹50,000.
Total42,40042,400
Narration: Being income tax refund for AY 2026-27 received on [Date] — principal refund ₹40,000 + refund interest u/s 244A ₹2,400 = ₹42,400, as per CPC Intimation u/s 143(1) dated [Date]. Interest on IT refund credited to "Interest on Income Tax Refund" — taxable as other income in FY [year of receipt].

Complete Worked Examples — All Journal Entries

Three comprehensive worked examples covering different taxpayer types: a private limited company (with MAT scenario), a professional individual, and a presumptive taxpayer. Each example shows all entries from advance tax payment through final adjustment.

EXAMPLE 1 Private Limited Company — FY 2025-26
Scenario: ABC Pvt Ltd has estimated income of ₹1,00,00,000 (₹1 crore) for FY 2025-26. Book profit for MAT u/s 115JB = ₹80,00,000. Company opted for the regular tax regime (30%). TDS deducted: ₹5,00,000. The company pays advance tax in 4 installments exactly at the prescribed percentages. At year end, actual income is ₹1,05,00,000 and TDS actual = ₹5,50,000.

Step 1 — Computation of Advance Tax

ComputationRegular Tax (Sec 115BA / 30%)MAT (Sec 115JB @ 15%)Tax Payable
Taxable Income / Book Profit₹1,00,00,000₹80,00,000—
Tax Rate30%15%—
Income Tax₹30,00,000₹12,00,000—
Surcharge @7% (income > ₹1Cr, applying marginal relief)₹2,10,000₹84,000—
H&E Cess @ 4%₹1,28,400₹51,360—
Total Tax₹33,38,400₹13,35,360₹33,38,400 (higher — regular tax applies)
Less: TDS (estimated)₹5,00,000—
Advance Tax Payable—₹28,38,400

Step 2 — Journal Entries: All 4 Installments

DateAccount HeadDr/CrDr (₹)Cr (₹)
15 Jun 2025
15% = ₹4,25,760		Advance Income Tax A/cDr4,25,760—
To Bank A/cCr—4,25,760
15 Sep 2025
45% − 15% = 30% = ₹8,51,520		Advance Income Tax A/cDr8,51,520—
To Bank A/cCr—8,51,520
15 Dec 2025
75% − 45% = 30% = ₹8,51,520		Advance Income Tax A/cDr8,51,520—
To Bank A/cCr—8,51,520
15 Mar 2026
100% − 75% = 25% = ₹7,09,600		Advance Income Tax A/cDr7,09,600—
To Bank A/cCr—7,09,600
Total Advance Tax Paid28,38,40028,38,400

Step 3 — Year-End Entries (31 March 2026)

AccountDr/CrDr (₹)Cr (₹)
Current Tax Expense A/c (P&L)Dr35,06,400—
Tax on actual income ₹1,05,00,000: ₹31,50,000 + surcharge 7% (₹2,20,500) + cess 4% (₹1,35,900) = ₹35,06,400
To Provision for Income Tax A/cCr—35,06,400
Provision for Income Tax A/cDr28,38,400—
To Advance Income Tax A/cCr—28,38,400
Provision for Income Tax A/cDr5,50,000—
To TDS Receivable A/cCr—5,50,000
Balance in Provision: ₹35,06,400 − ₹28,38,400 − ₹5,50,000 = ₹1,18,000 (Self-Assessment Tax Due). Pay via Challan ITNS 280 before filing ITR.
EXAMPLE 2 Individual Professional (Doctor / Consultant) — FY 2025-26
Scenario: Dr. Ramesh, a practicing doctor, has estimated professional income of ₹35,00,000 for FY 2025-26 under the old regime with deductions of ₹2,00,000 (80C: ₹1,50,000 + 80D: ₹50,000). TDS expected on professional fees = ₹3,00,000. Net taxable = ₹33,00,000.
Tax ComputationAmount (₹)
Net Taxable Income₹33,00,000
Tax on ₹33L (Old Regime): Nil (up to 2.5L) + 5% on 2.5-5L (₹12,500) + 20% on 5-10L (₹1,00,000) + 30% on 10-33L (₹6,90,000) = ₹8,02,500₹8,02,500
Surcharge (income ≤ 50L — Nil)₹0
H&E Cess @ 4%₹32,100
Gross Tax Liability₹8,34,600
Less: TDS(₹3,00,000)
Advance Tax Payable₹5,34,600
1st (15% = ₹80,190) | 2nd (30% = ₹1,60,380) | 3rd (30% = ₹1,60,380) | 4th (25% = ₹1,33,650)Total: ₹5,34,600
Date & InstallmentDebitCredit
15 Jun 2025 — 1st (₹80,190)Advance Tax A/c Dr ₹80,190Bank A/c Cr ₹80,190
15 Sep 2025 — 2nd (₹1,60,380)Advance Tax A/c Dr ₹1,60,380Bank A/c Cr ₹1,60,380
15 Dec 2025 — 3rd (₹1,60,380)Advance Tax A/c Dr ₹1,60,380Bank A/c Cr ₹1,60,380
15 Mar 2026 — 4th (₹1,33,650)Advance Tax A/c Dr ₹1,33,650Bank A/c Cr ₹1,33,650
31 Mar 2026 — Tax ProvisionIncome Tax A/c (P&L) Dr ₹8,34,600Provision for IT Cr ₹8,34,600
31 Mar 2026 — Advance Tax Set-offProvision for IT Dr ₹5,34,600Advance Tax A/c Cr ₹5,34,600
31 Mar 2026 — TDS Set-offProvision for IT Dr ₹3,00,000TDS Receivable Cr ₹3,00,000
Balance in Provision for IT = ₹8,34,600 − ₹5,34,600 − ₹3,00,000 = NIL. No self-assessment tax due. (Small refund of nil in this case — or pay minor shortfall if actual differs.)
EXAMPLE 3 Presumptive Taxpayer u/s 44AD — FY 2025-26 (Single Installment)
Scenario: Mr. Suresh runs a retail business with turnover of ₹1,50,00,000. He opts for presumptive taxation u/s 44AD (8% of cash turnover / 6% of digital turnover). Cash turnover = ₹60L, Digital = ₹90L. Presumptive income = (60L × 8%) + (90L × 6%) = ₹4,80,000 + ₹5,40,000 = ₹10,20,000. After deductions: Net taxable = ₹8,70,000 (after 80C ₹1,50,000). Tax = ₹71,500 + cess ₹2,860 = ₹74,360. TDS = ₹10,000. Advance tax = ₹64,360. Single installment due: 15th March.
Account HeadDr/CrDr (₹)Cr (₹)
Advance Income Tax A/c Current AssetDr64,360—
Single and entire advance tax for FY 2025-26 — presumptive taxpayer u/s 44AD. Entire 100% payable by 15th March 2026. No installment obligation under Section 211(1) for presumptive taxpayers — single due date.
To Bank A/cCr—64,360
Total64,36064,360
Income Tax A/c (P&L) — Year EndDr74,360—
To Provision for Income Tax A/cCr—74,360
Provision for Income Tax A/cDr74,360—
To Advance Tax A/c (₹64,360) + TDS Receivable (₹10,000)Cr—74,360
Result: Provision for income tax = NIL after set-off. No self-assessment tax due. If Mr. Suresh files ITR after 31st July 2026 — interest u/s 234A @ 1% per month will apply on ₹74,360 − ₹64,360 (TDS set-off excluded from 234A base? No — 234A applies on assessed tax − advance tax − TDS).

Special Scenarios — Journal Entries

Accounting treatment for unusual but commonly encountered advance tax situations — MAT credit entitlement, advance tax in loss years, TCS adjustments, and assessment demand entries.

MAT Credit

MAT Credit Entitlement u/s 115JAA — When MAT Exceeds Regular Tax

When a company pays advance tax on the basis of MAT (because MAT > regular tax), the excess of MAT over regular tax creates a MAT Credit Entitlement — an asset that can be set off against regular tax in the next 15 years. Journal Entry: Dr MAT Credit Entitlement A/c (Non-Current Asset) / Cr Deferred Tax Credit (P&L) for the excess of MAT paid over regular tax liability. The advance tax entry itself remains: Dr Advance Tax A/c / Cr Bank A/c (same as always). The MAT credit entry is a separate deferred tax-type entry.

Loss Year

Advance Tax in a Year When Business Incurs Loss

If the company/firm incurs a business loss but has other income (e.g., capital gains, interest) that is taxable, advance tax is still payable on the net tax liability. Advance tax entries remain the same. However, if overall income is nil or negative (loss exceeds other income), NO advance tax is payable. Any advance tax already paid is reversed: Dr Advance Tax A/c (still an asset — refund receivable) / adjusted against provision for zero tax. The advance tax paid becomes a refund receivable in the ITR.

TCS Adjust

TCS Collected on Purchases — Adjustment in Advance Tax Computation

TCS (Tax Collected at Source) on purchases (e.g., 1% TCS on goods purchased above ₹50L, 5% on foreign remittance) is creditable against advance tax just like TDS. In books: Dr TCS Receivable A/c / Cr Purchases / Expense A/c for the gross amount; TCS portion shown as receivable. At year-end, TCS receivable is set off against provision for income tax — exactly like TDS adjustment (Entry 7 above). TCS credit verified from Form 26AS.

Demand

IT Department Demand Notice — Additional Tax After Assessment (Section 143(3) / 148)

When a demand is raised by the IT department after scrutiny assessment u/s 143(3) or reassessment u/s 148, the additional tax must be provided for in the books. Journal Entry (on receipt of demand): Dr Income Tax Expense A/c (P&L — prior period or current year as applicable per AS 5) / Cr Income Tax Demand Payable A/c (Current Liability). On payment of demand: Dr Income Tax Demand Payable A/c / Cr Bank A/c. If appealed before CIT(A) / ITAT and a stay is granted — show as contingent liability in notes.

Section 115BAC

New Tax Regime — Impact on Advance Tax Journal Entries

For taxpayers who opt for the new tax regime u/s 115BAC (default from AY 2024-25 for individuals/HUF) — advance tax computation uses new regime slab rates (0%/5%/10%/15%/20%/30%) with no deductions (except NPS employer contribution, Section 80CCH). Journal entries are identical — only the advance tax amount differs (lower in most cases under new regime due to lower rates up to ₹15L). If switching between regimes year to year — ensure the correct rate is applied for that year's advance tax computation.

Advance Tax Accounting & Compliance Checklist

A structured checklist for accountants, finance managers, and tax professionals to ensure correct journal entries, timely payments, and error-free ITR filing.

📋 During the Financial Year

  • Compute estimated income at the beginning of the year and before each installment date — revise upward if income increases to minimize Section 234C interest
  • For each installment: Create the journal entry Dr Advance Tax A/c / Cr Bank A/c with complete challan details (BSR Code, Serial No., Date, Minor Head 100) in the narration
  • Maintain a running schedule of advance tax payments — installment-wise with challan details, payment amounts, and cumulative totals — for quarterly reconciliation
  • Record TDS receivable entries as income is accrued/received — ensure TDS entries match amounts visible in Form 26AS / AIS at regular intervals (check monthly)
  • Cross-verify TDS entries with Form 26AS and AIS before each subsequent installment computation — disputed or missing TDS credits may affect advance tax computation
  • For companies: Compute whether MAT or regular tax is higher before each installment — advance tax is on whichever is higher; also compute MAT credit entitlement
  • Ensure bank reconciliation includes all advance tax challan payments — CIN (Challan Identification Number) verification on NSDL/TIN portal for each payment

📝 Year-End Closing (31st March)

  • Prepare year-end income tax computation with actual income, deductions, TDS, TCS — determine the final tax liability and compare with provision already created
  • Create provision for income tax entry (Dr Income Tax Expense / Cr Provision for IT) for the actual/estimated final tax liability — under Ind AS 12, use enacted tax rates
  • Pass advance tax set-off entry (Dr Provision for IT / Cr Advance Tax A/c) — advance tax balance in books should exactly equal total challan payments verified from tracker
  • Pass TDS receivable set-off entry (Dr Provision for IT / Cr TDS Receivable A/c) — must be ≤ amount visible in Form 26AS for the year (do not book TDS not appearing in 26AS)
  • Create deferred tax entries (DTA / DTL) as per Ind AS 12 / AS 22 — compute on all temporary differences including depreciation, provisions, gratuity actuarial, etc.
  • The balance in Provision for IT after all set-offs = Self-Assessment Tax Payable (if positive) or IT Refund Receivable (if negative) — disclose correctly in balance sheet
  • Compute interest u/s 234B and 234C for any shortfalls in advance tax — create provision and charge to P&L as "Interest on Income Tax" (non-deductible)

⚠️ After Filing ITR

  • On payment of self-assessment tax: Dr Provision for IT / Cr Bank A/c — ensure Minor Head 300 on challan; reconcile challan with ITR computation
  • On receipt of CPC Intimation u/s 143(1): Compare with books — if demand raised: provide for it; if refund: ensure IT Refund Receivable is on books (from Entry 14)
  • On receipt of refund in bank account: Dr Bank / Cr IT Refund Receivable + Cr Interest on IT Refund u/s 244A — the interest portion is taxable income of the receipt year
  • For any section 143(3) scrutiny notice: Compute potential demand; if likely, provide as per AS 29 / Ind AS 37 — certain demands must be fully provided; probable ones disclosed as contingent liability
  • Update the MAT Credit Entitlement schedule annually — track available credit, utilization each year, and balance carried forward (max 15 years from AY of payment)

Advance Tax — Data & Analytics

Visual overview of advance tax payment timelines, interest implications of deferment, and the relationship between advance tax, TDS, and final assessed tax for typical taxpayer categories.

Cumulative Advance Tax — Installment Build-up

% of total advance tax payable built up across the year (Section 211)

Interest u/s 234C — Deferment Cost

Illustrative interest cost (₹) for different levels of installment shortfall

Tax Payment Components — Typical Company

Breakdown of how total assessed tax is settled — advance tax vs TDS vs SAT

Section 234B vs 234C — Interest Scenarios

Comparing interest under 234B (90% rule) vs 234C (installment deferment)

Frequently Asked Questions

Answers to the most common questions on advance tax journal entries and accounting treatment from our users and practicing accountants.

Advance tax is always debited to "Advance Income Tax A/c" (or "Advance Tax A/c") — this is a Current Asset account. The credit is to the Bank A/c. The logic: paying advance tax is like giving the government a deposit/prepayment — you have a right to claim this against your final tax liability. It's similar to paying a security deposit — it's an asset (prepaid tax). It becomes an expense only when set off against the "Provision for Income Tax" (which is the actual income tax expense for the period). So: PAYMENT = Asset entry. SET-OFF at year-end = Expense recognition (debit Provision, credit Advance Tax A/c). The expense is recognized via the Provision entry — not at the time of payment.
Under Companies Act 2013 / Schedule III / Ind AS: Advance tax paid (and TDS receivable) appear under "Current Assets → Current Tax Assets (Net)" in the Balance Sheet. After netting advance tax + TDS against provision for income tax — if the asset exceeds the liability, the net is shown as a Current Asset ("Current Tax Assets"). If the liability (provision) exceeds the assets, the net is shown under "Current Liabilities → Current Tax Liabilities (Net)." Under old AS — shown under "Loans and Advances" (Current Assets) for advance tax paid, and "Provisions" (Current Liabilities) for provision for income tax — shown separately without netting. Under Ind AS 12 — netting is allowed only when the entity has a legally enforceable right to set off current tax assets against current tax liabilities and they relate to the same taxable entity and the same tax authority.
When advance tax paid (plus TDS credits) exceeds the actual tax liability: (a) At year-end, the set-off entry (Dr Provision for IT / Cr Advance Tax A/c) will result in a credit balance in Provision for IT — this means the provision is over and the excess represents a refund receivable; (b) Pass: Dr Provision for IT A/c / Cr IT Refund Receivable A/c (for the excess amount); (c) IT Refund Receivable appears as a Current Asset in the Balance Sheet; (d) When the actual refund is received from the IT Department: Dr Bank A/c / Cr IT Refund Receivable A/c (for principal) + Cr Interest on IT Refund A/c (for Section 244A interest — taxable as other income in the year of receipt); (e) No provision for income tax is needed in a year where advance tax + TDS fully covers the liability with surplus. Note: Refund interest u/s 244A is given at 6% per annum (simple) from 1st April of the assessment year to the date of grant of refund — but if refund is less than 10% of assessed tax, no interest is paid.
For quarterly / half-yearly financial statements (especially for listed companies under SEBI LODR, or for bank/audit committee purposes): (a) Advance tax paid is shown as a current asset in each interim balance sheet; (b) Provision for income tax should be created at each interim date based on estimated annual income — apportioned over the year (e.g., tax provision for Q1 = estimated annual tax × Q1 profit / annual estimated profit, OR simply estimated tax for the quarter under Ind AS 34 — Interim Financial Reporting); (c) The net of advance tax, TDS, and provision at each quarter end represents the net current tax asset or liability; (d) Deferred tax: also updated at each interim date based on changes in temporary differences; (e) Key principle per Ind AS 34: "Income tax expense is recognized in each interim period based on the best estimate of the weighted average annual income tax rate expected for the full financial year."
Interest under Sections 234A, 234B, and 234C is NOT part of the income tax expense in the strict accounting sense. It is a separate line item — typically shown as "Interest on Income Tax" or "Penal Interest — Income Tax" under "Finance Costs" or "Other Expenses" in the P&L statement. It should NOT be clubbed with the income tax charge. The income tax charge (current tax) represents only the principal tax liability. Interest is a penalty for delayed / short payment and is disclosed separately per Schedule III requirements. Also, as established by the Supreme Court and CBDT circulars, these interest amounts are not deductible as business expenses in computing taxable income — so they must be added back in the tax computation. In the P&L, they appear as a non-deductible expense — creating a permanent difference (not a timing difference) that does not give rise to deferred tax.
The fundamental journal entries are identical for all taxpayers — Dr Advance Tax A/c / Cr Bank at payment; Dr Income Tax A/c (P&L) / Cr Provision at year end; set-off of advance tax and TDS against provision. However, differences exist: (a) Firms are taxed at a flat rate of 30% + surcharge 12% (if income > ₹1 crore) + cess 4% — no slab rates; (b) Partners are also separately taxed on their share of profit + other income — the firm and the partners maintain separate books and separate advance tax accounts; (c) LLPs: Same as firms — 30% flat rate; no MAT; no dividend distribution tax; (d) Companies must comply with Ind AS 12 / AS 22 for deferred tax — firms and individuals have no such mandatory requirement under ICAI standards (though applying the concept gives a more accurate picture); (e) Firms/LLPs do not have MAT provisions — only companies have MAT u/s 115JB; (f) The partners' advance tax is paid in their individual capacity — not by the firm. The firm only pays tax on its own income.