Section 405 · Collection & recovery
Section 405 of the Income-tax Act, 2025 — Computation of Advance Tax (Formula A = B − C)
By CA Rajat Agrawal
Updated 05 Jul 2026
Chapter XIX
📜 What the law says — Section 405, Income-tax Act 2025
405. (1) The amount of advance tax payable by an assessee under section 404,
on his own accord under section 406, or in pursuance of an order of an
Assessing Officer under section 407, in the financial year shall, subject to the
provisions of sub-section (2), be computed as under—
A=B–C
where,—
A = the amount of advance tax payable in a financial year;
B = income-tax on the specified sum calculated at the rates in force in the
financial year, where “specified sum” shall have the meaning assigned
to it in section 406 or 407;
C = amount of income-tax which would be deductible or collectible at source
during the said financial year under any provision of this Act from any
income subject to the following:—
(a) such income is computed before allowing any deduction admissible
under this Act and has been taken into account in computing the
specified sum; and
96. Inserted by the Finance Act, 2026, w.e.f. 1-4-2026.
(b) (i) the person responsible for deducting tax has paid or credited
such income after deduction of tax; or
(ii) the person responsible for collecting tax has received or debited
such income after collection of tax.
(2) In the case of any class of assessees, where the Finance Act of the relevant year
provides that, net agricultural income shall be taken into account for the purposes
of computing advance tax, then,—
(a) for the purposes of order as mentioned in section 407(1) and (4), the
net agricultural income shall be the amount that has been taken into
account for the purposes of charging income-tax on the specified sum
as mentioned in sub-sections (3) and (6) of the said section; or
(b) in any other situation, the net agricultural income as estimated by the
assessee for the tax year.
Payment of advance tax by assessee on his own accord.
In plain language
What Section 405 says in plain English
Section 405 of the Income-tax Act, 2025 lays down how you actually calculate the advance tax you have to pay during a financial year. It does not decide who must pay (that is Section 404) or when you pay (that is Section 408) — it only gives you the arithmetic. The section reduces the whole exercise to a simple formula:
- A = B − C
- A = the advance tax payable during the financial year.
- B = income-tax on your estimated "specified sum" (your estimated total income), calculated at the rates in force for that financial year — including surcharge and the 4% health & education cess.
- C = the income-tax that would be deducted (TDS) or collected (TCS) at source on that income during the same financial year.
In everyday language: estimate your income for the year, work out the tax on it at current rates, subtract the TDS/TCS that others will already deduct/collect for you, and the balance is your advance tax. Section 405 corresponds to the old Section 209 of the Income-tax Act, 1961 — the mechanics are essentially carried forward, just rewritten in the cleaner "A = B − C" style the 2025 Act uses throughout.
Who this applies to
- Every category of taxpayer that is liable to advance tax under Section 404 — individuals, HUFs, firms, LLPs, companies and non-residents.
- The liability itself is triggered only when the net tax payable (after TDS/TCS) is ₹10,000 or more in the year.
- Resident senior citizens (aged 60+) who have no income from business or profession are exempt from advance tax altogether, so Section 405 never applies to them.
How component C (the TDS/TCS credit) works
You can subtract TDS/TCS in your estimate only for income on which tax is genuinely liable to be deducted or collected. The Act ties component C to income that is computed and included in your estimated total income, and where the deductor/collector is expected to actually deduct or collect. Practically, this means you must gross up your income and then net off the TDS/TCS — you cannot claim credit for tax that will not, in fact, be deducted.
Agricultural income adjustment
Where the Finance Act for the relevant year provides that net agricultural income is to be taken into account (the "partial integration" of agricultural income for rate purposes), Section 405 requires that:
- Where tax is charged on the specified sum under a Section 407 order, the net agricultural income as charged is used; and
- In other cases, the net agricultural income as estimated by the assessee is used.
This matters mainly for individuals/HUFs whose agricultural income exceeds ₹5,000 alongside non-agricultural income above the basic exemption limit, because agricultural income pushes up the effective slab rate.
How it interacts with related sections
- Section 404 decides liability (the ₹10,000 trigger); 405 tells you the amount; 408 splits it into instalments (15% / 45% / 75% / 100%).
- Section 407 lets the Assessing Officer pass an order to pay advance tax based on a past assessment; in that case component B flows from that assessed/estimated figure.
- Interest under Sections 424 and 425 (successors to the old 234B/234C) applies if you under-estimate or under-pay — so an inaccurate Section 405 computation has a real cost.
Practical implications
- Estimate honestly. Because interest at 1% per month accrues on shortfalls, deliberately low-balling component B backfires.
- Pick your regime first. The tax in component B depends on whether you are under the new default regime or the old regime — decide before you compute.
- Track TDS/TCS in real time. Salary TDS, interest TDS, TCS on car/foreign remittance etc. all reduce component C, and your Form 26AS/AIS helps you estimate C accurately.
- Capital gains & one-off income that cannot be foreseen are handled by paying the extra advance tax in the remaining instalments after the income arises, avoiding interest for the earlier instalments.
💡 Example
Worked example 1 — a salaried professional with side income. Priya, a resident under the new regime, estimates total income of ₹18,00,000 for FY 2026-27. Tax on this (B), including 4% cess, works out to roughly ₹1,95,000. Her employer will deduct TDS on salary of about ₹1,50,000 during the year, and her bank will deduct ₹5,000 TDS on FD interest — so C = ₹1,55,000. Her advance tax A = B − C = ₹1,95,000 − ₹1,55,000 = ₹40,000. Since this exceeds ₹10,000, she must pay it in instalments under Section 408: ₹6,000 by 15 Jun, ₹18,000 cumulative by 15 Sep, ₹30,000 by 15 Dec and ₹40,000 by 15 Mar.
Worked example 2 — a freelancer, mostly no TDS. Arjun runs a consultancy and estimates total income of ₹12,00,000. Tax (B) is about ₹75,000 (new regime, with cess). Clients deduct TDS under Section 194J of about ₹15,000 (C). His advance tax A = ₹75,000 − ₹15,000 = ₹60,000, payable in the four instalments. If he had opted for presumptive taxation under Section 44ADA-equivalent rules, he could pay the full ₹60,000 in a single instalment by 15 March.
A relatable story. Ramesh, a shopkeeper, ignored advance tax because "TDS is the company's job." But he had almost no TDS on his business profits. At filing time his tax came to ₹85,000, and on top of it he paid nearly ₹9,000 of interest under Sections 424/425 for not paying in advance. The next year he sat down in June, applied A = B − C, saw that C was tiny, and simply paid his instalments on time — no interest, no year-end shock. Section 405 is really just that: a formula to spread and pre-pay what you would owe anyway.
| Element / Rule | Detail under the 2025 Act |
|---|
| Governing section | Section 405 — Computation of advance tax (1961 Act equivalent: Section 209) |
| Formula | A = B − C |
| A | Advance tax payable in the financial year |
| B | Income-tax on estimated total income at rates in force (incl. surcharge + 4% cess) |
| C | TDS + TCS deductible/collectible on that income during the year |
| Liability trigger (Sec 404) | Net tax payable ≥ ₹10,000 |
| Instalments (Sec 408) | 15% by 15 Jun · 45% by 15 Sep · 75% by 15 Dec · 100% by 15 Mar |
| Presumptive scheme | Full 100% in a single instalment by 15 March |
| Key exemption | Resident senior citizen (60+) with no business/professional income |
| Interest on shortfall | 1% per month under Sections 424 / 425 |
Related sections
Section 404 — Liability to pay advance tax (₹10,000 threshold) Section 408 — Instalments of advance tax and due dates Section 407 — AO's order to pay advance tax on past assessment Section 424 — Interest for default in payment of advance tax Section 425 — Interest for deferment of advance tax instalments Section 393 — TDS: deduction of tax at source
Frequently asked questions
What is the formula for computing advance tax under Section 405?
Advance tax A = B − C, where B is income-tax on your estimated total income at the rates in force for the year (including surcharge and cess), and C is the TDS/TCS expected to be deducted or collected on that income. The balance is your advance tax.
Is Section 405 of the 2025 Act different from the old law?
It corresponds to Section 209 of the Income-tax Act, 1961. The computation logic is broadly the same; the 2025 Act simply rewrites it in the cleaner A = B − C formula and took effect from 1 April 2026.
Can I reduce my advance tax by the TDS deducted on my income?
Yes. Component C in the formula is exactly the TDS and TCS liable to be deducted or collected on your estimated income during the year, so you subtract it. You cannot claim credit for tax that will not actually be deducted.
Do I pay advance tax if my net tax after TDS is below ₹10,000?
No. Under Section 404, advance tax is payable only when your net tax liability (after reducing TDS/TCS) is ₹10,000 or more. Below that, no advance tax is due.
How is agricultural income treated in the advance tax computation?
Where the Finance Act provides for partial integration, net agricultural income is taken into account for the rate calculation — as charged under a Section 407 order, or otherwise as estimated by you — which can raise the effective slab rate on your other income.
What happens if I under-estimate my income under Section 405?
If your advance tax falls short of the prescribed instalments or of 90% of the final tax, interest at 1% per month applies under Sections 424 and 425. So an honest, accurate estimate is important.
Can presumptive taxpayers use a simpler schedule?
Yes. Taxpayers under the presumptive scheme can pay their entire advance tax computed under Section 405 in a single instalment on or before 15 March, instead of four instalments.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 05 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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