Advance Tax in India: A Guide for Foreign Companies, Subsidiaries & NRIs

Advance tax is one of the most commonly misunderstood compliance obligations for companies operating in India — especially for foreign subsidiaries and NRI promoters who may be unfamiliar with India's direct tax system.

What Is Advance Tax?

Advance tax is income tax paid in instalments during the financial year itself, rather than as a lump sum at year-end. It applies to all taxpayers whose estimated tax liability for the year exceeds INR 10,000.

The rationale is simple: the government wants tax revenue throughout the year rather than at year-end.

Who Must Pay Advance Tax?

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  All Indian companies (including foreign subsidiaries incorporated in India)

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  LLPs and firms

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  Individuals, NRIs, and HUFs with taxable income above threshold

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  Foreign companies earning income in India (royalties, FTS, capital gains)

Advance Tax Instalments — Due Dates

Instalment | Due Date | % of Total Tax Liability

Note: For taxpayers opting for the presumptive taxation scheme (Section 44AD/44ADA), only one instalment is due by March 15.

How to Calculate Advance Tax

Step 1: Estimate total income for the financial year (from business, salary, capital gains, other sources)

Step 2: Compute tax on estimated income using applicable slab rates or corporate tax rates

Step 3: Deduct TDS already deducted or expected to be deducted

Step 4: If balance tax > INR 10,000, pay advance tax in the above instalments

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  Domestic companies (under Section 115BAA): 22% + 10% surcharge (if income > INR 10 crore) + 4% cess = effective ~25.17%

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  Foreign companies: 40% + applicable surcharge + cess

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  NRIs: Slab rates (same as residents) on Indian-sourced income

Consequences of Non-Payment or Short Payment

Interest under Section 234B: If advance tax paid is less than 90% of assessed tax, interest at 1% per month is charged from April 1 until the date of payment.

Interest under Section 234C: If instalments are paid late or below the prescribed percentages, interest at 1% per month is charged on the shortfall for each instalment period.

Advance Tax for Foreign Companies Earning in India

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  Royalties and FTS: taxed at 10% or 15% + surcharge + cess (or lower DTAA rate)

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  Capital gains: taxed at applicable rates (20% for long-term, 30% for short-term)

Where TDS has been deducted on such income, the TDS credit reduces the advance tax liability.

Advance Tax for NRIs

NRIs with income from India (rent, capital gains, business income) are liable for advance tax on such income. NRIs whose only Indian income is subject to full TDS (e.g., interest on NRO accounts, capital gains on listed securities) may have no residual advance tax liability.

Practical Tips for Subsidiaries of Foreign Companies

1. Project income conservatively: It's better to pay slightly more advance tax and claim a refund than to underpay and pay interest.

2. Account for transfer pricing adjustments: If a transfer pricing adjustment is anticipated, factor it into your advance tax computation.

3. Track MAT applicability: Companies under Minimum Alternate Tax (MAT) — 15% of book profit — must compute advance tax on the higher of normal tax or MAT.

4. Use your TDS credits: TDS deducted by Indian customers on payments to you reduces your advance tax liability. Reconcile Form 26AS regularly.

How PGA & Co. Can Help

Our tax team prepares advance tax computations for foreign subsidiaries and NRI clients, ensures timely payments, and files all related returns. We monitor TDS credits, manage transfer pricing provisions, and minimise interest exposure.