Section 147 of the Income Tax Ordinance requires certain taxpayers to pay their expected annual tax in four instalments spread across the year, rather than in one lump sum at return-filing time. If your assessed tax crossed Rs. 1,000,000 in the previous year, this quarterly obligation applies to you, and missing an instalment is more costly than most people realise once the default surcharge kicks in.
Who Falls Under the Advance Tax Net
The threshold test is simple: anyone whose latest assessed tax liability exceeds Rs. 1 million must pay quarterly instalments, unless they are a pure salaried employee whose employer already withholds the full monthly tax under Section 149. In practice, this pulls in:
- Shop owners, manufacturers, and traders whose income is self-declared rather than deducted at source
- Doctors, lawyers, architects, engineers, and consultants who bill clients directly
- Landlords earning rental income above the exempt threshold, especially from multiple properties
- Investors with dividend income, capital gains, or mutual fund returns
- Salaried people who also have a side income stream — rent, freelance work, or investments — not covered by their employer's withholding
- Freelancers and independent professionals whose annual tax bill, once computed, crosses the Rs. 1 million mark
A salaried employee whose only income is salary and whose full tax is already withheld monthly is exempt from this requirement — but the moment there's meaningful non-salary income in the mix, advance tax applies to that portion.
The Four Instalment Dates
Advance tax is split into equal quarterly payments, each worth 25% of your estimated annual tax:
- 25 September — first instalment
- 25 December — second instalment
- 25 March — third instalment
- 15 June — fourth and final instalment
By the end of the tax year, the four instalments together should equal 100% of what you actually owed. Whatever you've overpaid becomes a refundable credit when you file your return; whatever you've underpaid is due — with surcharge — at filing time.
Working Out the Instalment Amount
FBR gives you two routes to arrive at the quarterly figure. The default method takes your most recently assessed tax and divides it into four equal parts — so if last year's assessed tax was Rs. 2 million, each quarter you owe Rs. 500,000. The second route lets you file a revised income estimate on IRIS if your business circumstances have genuinely changed (a slow year, a new expansion, a lost contract), and future instalments are recalculated from that revised figure. The revised estimate must be submitted before the relevant due date — filing it after the deadline won't help that quarter.
Paying Through IRIS
- Log into IRIS with your NTN/CNIC and password
- Go to Payments → Create Payment
- Choose "Advance Tax u/s 147" as the payment type
- Enter the relevant tax year and instalment amount
- Select your bank and generate a PSID (Payment Slip ID)
- Pay the PSID via bank branch, mobile app, or internet banking
- Confirm it posted correctly under Payments → Payment History within a few business days
What Happens If You Miss a Payment
Underpaying or skipping an instalment triggers a default surcharge under Section 205, charged at KIBOR plus 3% per year on the unpaid balance, counted from the original due date until you actually pay. With KIBOR typically running around 10–12%, that puts the effective surcharge somewhere around 13–15% annually — not a fixed penalty, but a running interest cost that keeps accumulating the longer the balance sits unpaid. For example, an instalment of Rs. 500,000 paid three months late at a 15% combined rate would attract roughly Rs. 18,750 in surcharge alone — money you could easily have avoided by paying on schedule.
How It Nets Against Your Final Bill
None of this is extra tax — it's a prepayment. When you file your annual return, IRIS automatically pulls in everything you paid through the year under Payment History and offsets it against your final computed liability. Pay in more than you owed, and the surplus becomes a refund claim under Section 170. Pay in less, and you settle the difference — plus any accrued surcharge — at filing time.
Advance Tax Is Not the Same as Withholding Tax
These two get confused constantly. Withholding tax is deducted by someone else — your bank on savings profit, your client on service payments, your employer on salary — and deposited to FBR on your behalf; you never touch that money or file it yourself. Advance tax, on the other hand, is entirely on you: you calculate it, generate the PSID, and pay it. Both eventually get credited against your annual liability, but only advance tax requires you to take independent action four times a year.
A Note for Freelancers
Independent professionals and freelancers are not exempt just because their income arrives project-by-project instead of as a fixed salary. If your computed annual tax crosses Rs. 1 million, the same quarterly obligation applies. Since project income is harder to forecast, a practical habit is setting aside roughly a quarter of every payment received into a separate account earmarked for tax — by the time each instalment is due, the reserve is usually sitting there ready.