Advance Tax & Form 168 (formerly Form 26AS) — Sections 403–408, Income-tax Act

What Is Advance Tax?

Advance tax is the mechanism under sections 403 to 408 of the Income-tax Act, 2025 (sections 207 to 211 of the Income-tax Act, 1961) that requires every person — individuals, firms, and companies — to pay income tax in quarterly installments during the financial year in which the income is earned, rather than as a lump sum after the year ends. If your estimated tax liability for the year (after accounting for TDS) exceeds INR 10,000, you are required to compute and pay advance tax in four installments due on June 15, September 15, December 15, and March 15. See the advance tax payment schedule for companies for the full installment percentages and calculation method.

For foreign companies operating through an Indian subsidiary or branch office, advance tax is not optional — it is a statutory obligation from the first year of Indian operations. Missing even a single quarterly installment triggers interest under sections 424 and 425 of the Income-tax Act, 2025 (sections 234B and 234C of the Income-tax Act, 1961) at 1% per month, which compounds quickly on large corporate tax liabilities. Advance tax compliance is one of the first recurring obligations a foreign investor encounters after PAN registration.

What Is Form 168?

Form 168 — the statement known until 31 March 2026 as Form 26AS, renumbered when the Income-tax Rules, 2026 came into force on 1 April 2026 — is the Annual Tax Statement issued by the Income Tax Department, linked to your PAN. It is a consolidated ledger showing every rupee of tax credited to your account — TDS deducted by payers, TCS collected, advance tax and self-assessment tax payments, refunds received, and high-value Specified Financial Transactions (SFT). From AY 2023-24 onward, the government also introduced the Annual Information Statement (AIS), which captures an even broader data set including foreign remittances, mutual fund transactions, off-market share transfers, and salary breakdowns.

Form 168 is the taxpayer's primary reconciliation document. Before filing an income tax return, you must verify that every TDS credit, every advance tax challan, and every SFT entry in Form 168 matches your own records. Mismatches — especially between Form 168 and the AIS — are the single most common trigger for defective return notices and scrutiny assessments.

Legal Basis

• Section 403 of the Income-tax Act, 2025 (section 207 of the Income-tax Act, 1961) — Establishes the liability to pay advance tax. Every person whose estimated tax liability for the year exceeds INR 10,000 must pay advance tax. Resident senior citizens (60+ years) without business or professional income are exempt.
• Section 404 of the Income-tax Act, 2025 (section 208 of the Income-tax Act, 1961) — Defines the threshold: advance tax is payable only when the estimated tax liability, after reducing TDS/TCS credits, equals or exceeds INR 10,000.
• Section 405 of the Income-tax Act, 2025 (section 209 of the Income-tax Act, 1961) — Prescribes the computation method: estimate total income for the year, compute tax at applicable rates, deduct expected TDS/TCS, and the balance is the advance tax payable.
• Section 407 of the Income-tax Act, 2025 (section 210 of the Income-tax Act, 1961) — Empowers the Assessing Officer to issue a demand for advance tax payment based on the latest assessed income, if the taxpayer has not paid voluntarily. Payment made by the assessee of its own accord is dealt with separately by section 406.
• Section 408 of the Income-tax Act, 2025 (section 211 of the Income-tax Act, 1961) — Fixes the installment schedule and cumulative percentages (15%, 45%, 75%, 100%) for all assessees other than those opting for presumptive taxation under section 58 of the Income-tax Act, 2025 (sections 44AD and 44ADA of the Income-tax Act, 1961).
• Section 424 of the Income-tax Act, 2025 (section 234B of the Income-tax Act, 1961) — Imposes interest at 1% per month (simple) on the shortfall when advance tax paid is less than 90% of the assessed tax liability.
• Section 425 of the Income-tax Act, 2025 (section 234C of the Income-tax Act, 1961) — Imposes interest at 1% per month for each quarter where the cumulative advance tax paid falls short of the prescribed percentage.
• Section 510 of the Income-tax Act, 2025 (section 285BB of the Income-tax Act, 1961) — Provides for the annual information statement furnished to every PAN holder, consolidating TDS, TCS, advance tax, self-assessment tax, and SFT data.

Advance Tax Installment Schedule

Section 408 prescribes the following installment schedule for all assessees (companies, firms, individuals, and foreign entities operating in India):

Taxpayers opting for presumptive taxation under section 58 of the Income-tax Act, 2025, which merges sections 44AD and 44ADA of the Income-tax Act, 1961 — businesses with turnover up to INR 3 crore, and professionals with gross receipts up to INR 75 lakh — pay the entire advance tax in a single installment by March 15.

Corporate Tax Rates Driving Advance Tax Computation

The advance tax amount depends on the applicable corporate tax rate. For Indian subsidiaries of foreign companies, the key rates for FY 2026-27 are:

A foreign company operating through a permanent establishment in India faces the 35% base rate. However, most foreign investors incorporate a domestic subsidiary (private limited company) to access the lower 22% or 15% rates, making the choice of entity structure directly relevant to advance tax outflows.

Form 168: Structure and Components

Form 168 is divided into multiple parts, each capturing a specific category of tax-related data linked to your PAN:

Annual Information Statement (AIS) — The Expanded View

Since AY 2023-24, the Annual Information Statement (AIS) supplements Form 168 with significantly more data. While Form 168 on the TRACES portal now shows only TDS/TCS data, the AIS (accessible on the Income Tax e-filing portal) includes foreign remittances under the Liberalised Remittance Scheme, interest on income tax refunds, dividend income, mutual fund purchases, off-market share transactions, and salary breakdowns from employers. The AIS also allows taxpayers to submit feedback on reported transactions — accepting, disputing, or providing clarification — which is critical when reported data does not match your records.

How This Affects Foreign Investors in India

For a foreign company setting up operations in India — whether through a private limited subsidiary, branch office, or liaison office — advance tax and Form 168 compliance have several distinct implications:

Advance Tax from Year One

Unlike many jurisdictions where new companies get a grace period, India requires advance tax from the first financial year if the projected tax liability exceeds INR 10,000. A newly incorporated subsidiary that begins generating revenue in Q2 must estimate its full-year income and begin paying advance tax by September 15 (or retrospectively catch up on the June 15 installment).

Transfer Pricing and Advance Tax Estimation

Foreign subsidiaries earning revenue primarily from intercompany transactions face a unique challenge: the transfer pricing adjustment risk. If the Transfer Pricing Officer makes an adjustment in a subsequent assessment, the revised income increases the tax liability, and the company faces Section 424 interest on the shortfall — even though it could not have predicted the adjustment when computing advance tax. Safe harbour rules under section 167 of the Income-tax Act, 2025 (section 92CB of the Income-tax Act, 1961) can mitigate this risk.

Form 168 and Cross-Border Payments

Every payment made from India to a foreign parent or affiliate — management fees, royalties, software license fees — is subject to withholding tax (typically requiring Forms 145 and 146 (formerly Forms 15CA and 15CB) certification). These withholdings appear in the foreign company's Form 168. Similarly, any DTAA benefit claimed requires filing Form 41 (formerly Form 10F) with a Tax Residency Certificate, and the reduced withholding rate must match what is reflected in Form 168.

Two points on those forms matter for reconciliation. Form 145 keeps the familiar Part A/B/C/D structure, and a chartered accountant's certificate in Form 146 is required only for Part C — a taxable remittance exceeding INR 5 lakh made without a certificate from the Assessing Officer. Form 41 does not require the non-resident recipient to hold an Indian PAN: a non-PAN registration category has been available on the e-filing portal since October 2023, superseding the earlier position that a PAN was mandatory. Treaty benefit at source is available only where Form 41 has actually been filed — if it has not, the payer cannot apply the reduced treaty rate at the time of payment, and the higher withholding will be what shows up against the non-resident in Form 168.

Exempt Categories

Certain entities and income types are exempt from advance tax:

• Resident senior citizens (60+ years) with no business or professional income (section 403)
• Income on which TDS has already been deducted at applicable rates, effectively covering the tax liability
• Liaison offices that do not earn any income in India (no tax liability arises)
• Assessees under presumptive taxation (section 58) pay 100% by March 15 in a single installment — they are not required to follow the quarterly schedule

Common Mistakes

• Using the parent company's financial year for Indian advance tax estimates. Many foreign subsidiaries operate on a January-December fiscal year for group reporting but India's financial year runs April-March. Advance tax must be estimated and paid on the Indian FY basis — misaligning the two causes either under-payment (triggering section 424 and 425 interest) or over-payment (locking up working capital until refund).
• Ignoring transfer pricing adjustments when estimating advance tax. If your subsidiary earns 90% of revenue from the parent company, a TP adjustment of even 5% can add crores to taxable income. Not building a buffer for potential TP adjustments means guaranteed interest under Section 424 when the assessment order comes.
• Failing to reconcile Form 168 before filing the return. TDS credits shown in Form 168 often differ from the company's own books — deductors may file TDS returns late, quote incorrect PAN, or report wrong amounts. Claiming credits not reflected in Form 168 results in a demand notice; not claiming credits that are reflected means overpaying tax.
• Treating AIS feedback as optional. When the AIS shows a transaction you did not undertake (e.g., an SFT entry due to a PAN error by a financial institution), failing to submit a dispute response within the feedback window means the department treats it as accepted income. Foreign companies unfamiliar with AIS often miss this step entirely.
• Not paying advance tax on capital gains from share transfers. When a foreign parent transfers shares of an Indian subsidiary (triggering capital gains tax in India), the obligation to pay advance tax arises in the quarter the gain accrues. Many foreign companies pay the entire tax only at the time of filing the return, incurring section 424 interest from April 1 of the assessment year.

Practical Example

NovaTech GmbH, a German software company, incorporated NovaTech India Pvt Ltd as a wholly owned subsidiary in April 2025. NovaTech India provides software development services exclusively to its German parent under an intercompany service agreement priced at cost + 15% markup.

Revenue and tax estimation for FY 2026-27:

• Projected revenue: INR 8 crore (cost base INR 6.96 crore + 15% markup)
• Operating expenses (salaries, rent, admin): INR 6.96 crore
• Taxable profit: INR 1.04 crore
• Corporate tax at 25.17% (section 200 read with section 205(1)): INR 26.18 lakh
• Less: TDS credits expected (bank interest TDS): INR 0.45 lakh
• Net advance tax payable: INR 25.73 lakh

Installment schedule:

• June 15, 2026: 15% = INR 3.86 lakh
• September 15, 2026: 45% cumulative = INR 11.58 lakh (pay INR 7.72 lakh)
• December 15, 2026: 75% cumulative = INR 19.30 lakh (pay INR 7.72 lakh)
• March 15, 2027: 100% = INR 25.73 lakh (pay INR 6.43 lakh)

What went wrong: NovaTech India's CFO, unfamiliar with Indian quarterly obligations, paid no advance tax until March 2027 and deposited the full INR 25.73 lakh on March 14. The company avoided section 425 interest on the Q4 installment but owed it for Q1–Q3:

• Q1 shortfall (June 15 – Sept 15): 1% × 3 months × INR 3.86 lakh = INR 11,580
• Q2 shortfall (Sept 15 – Dec 15): 1% × 3 months × INR 7.72 lakh = INR 23,160
• Q3 shortfall (Dec 15 – Mar 15): 1% × 3 months × INR 7.72 lakh = INR 23,160

Total section 425 interest: INR 57,900. Additionally, if the Transfer Pricing Officer later adjusts the markup from 15% to 18% (adding INR 2.09 crore to revenue and INR 21.74 lakh to tax), NovaTech India will face Section 424 interest on the shortfall from April 1, 2027 until the date of payment — potentially INR 2,174 per month until resolved.

Had NovaTech India's accountant checked Form 168 in January 2027, they would also have noticed that TDS of INR 0.12 lakh deducted by a bank on a fixed deposit was credited to an incorrect PAN. By flagging this early, they could have asked the bank to file a correction return, ensuring the credit appeared correctly by the time of ITR filing.

Key Takeaways

• Advance tax applies to every entity — including foreign subsidiaries — with an estimated annual tax liability exceeding INR 10,000 after TDS/TCS credits
• The four quarterly installments (15%, 45%, 75%, 100%) are due on June 15, September 15, December 15, and March 15 — missing any triggers Section 425 interest at 1% per month
• Paying less than 90% of assessed tax as advance tax triggers Section 424 interest at 1% per month from April 1 of the assessment year
• Form 168 is the definitive reconciliation document — always verify TDS credits, advance tax challans, and SFT entries before filing your income tax return
• The Annual Information Statement (AIS) supplements Form 168 with broader financial data; submit feedback on mismatched transactions to avoid deemed acceptance
• Foreign subsidiaries must align advance tax estimates with the Indian financial year (April-March) and build buffers for potential transfer pricing adjustments

Need help managing quarterly advance tax payments and Form 168 reconciliation for your Indian subsidiary? Beacon Filing provides end-to-end corporate tax filing, advance tax computation, and TDS compliance services.