If an advance tax instalment is due and your cash is low, you can borrow against your shares or mutual funds rather than selling them. This lets you pay the tax on time, avoid interest for late payment and keep your long-term investments untouched.
This problem is common among freelancers, consultants, business owners and investors with large capital gains. Income often comes in unevenly, but advance tax dates are fixed. When an instalment falls due before a big client payment arrives, many people either delay paying the tax or sell their investments in a hurry. Neither is a wise choice for your money.
Who Pays Advance Tax and When
It helps to know the dates first, because they decide when you will need the money. If your total tax for the year, after TDS, is ₹10,000 or more, you must pay it in advance in instalments. Salaried people with only salary income are usually covered by TDS.
The rest typically pay by these dates:
- 15 June: at least 15% of the year’s tax
- 15 September: at least 45%
- 15 December: at least 75%
- 15 March: 100%
Those who opt for presumptive taxation for business or professional income can usually pay the full amount by 15 March.
Why Selling Investments Is Not the Best Answer
Selling may seem like the quickest way to raise cash, but it often costs more than it looks.
When you sell equity shares or funds, the gains are taxed. Long-term gains above ₹1.25 lakh a year are taxed at 12.5%, and short-term gains at 20%.
So selling to pay tax can actually increase your tax bill. You may also pay exit loads on some funds and lose the growth those investments would have earned. For holdings built over many years, this amount is a high price for a short cash gap.
Borrowing Against Your Investments to Pay on Time
A loan backed by your holdings lets you meet the deadline while your portfolio stays as it is.
With a loan against securities, you pledge your shares, mutual funds or bonds and borrow a part of their value.
The money usually reaches your account within a day or two, and you can repay once your income comes in. How much you get depends on what you pledge. Lenders usually offer around 50% of the value of equity shares or funds and more against debt funds.
If most of your savings are in mutual funds, a loan against mutual funds works the same way. You can use the lender’s calculator to see how much you can borrow against your current holdings before the instalment date.
Matching the Loan to Your Instalment Dates
Advance tax is paid in parts, so your borrowing can follow the same pattern. Many of these loans come as an overdraft limit. You withdraw only the amount needed for each instalment, a few days before the due date. Interest is charged only on what you use and only for the days it remains unpaid.
When a client payment or business income arrives, you repay the amount and the limit becomes available again for the next instalment. You also do not have to borrow the whole year’s tax at once. This approach suits people whose income comes in large but irregular amounts.
What Happens if You Pay Late or Pay Less
Some people simply skip an instalment and pay it later. That has a cost too. If you miss a due date or pay less than required, the Income Tax Department charges simple interest, usually 1% a month on the shortfall.
If you pay less than 90% of your tax by the end of the financial year, further interest applies until you pay. This interest cannot be claimed as a deduction, so it is a pure extra cost. Over a few months, this adds up.
Comparing the Costs
Before deciding, compare the three choices side by side.
- Selling investments: Capital gains tax, possible exit loads and lost future growth
- Paying late: Interest from the tax department for every month of delay
- Borrowing against investments: Loan interest only for the short period you need the money
For a gap of a few weeks or months, borrowing is often the cheapest of the three. Check the interest rate and any processing charges with your lender to be sure.
Plan Early to Borrow Less
The less you need to borrow, the lower your cost. A little planning through the year helps.
- Estimate your income for the full year by June and update it before each instalment
- Set aside a fixed share of every payment you receive for tax
- Keep the tax money in a separate savings account or liquid fund
- Ask clients to deduct TDS correctly so less is left to pay in advance
Final Thoughts
Advance tax dates are fixed, but your income may not be. Instead of selling long-term investments or paying interest for delays, you can borrow against your holdings for a short time. Plan your yearly taxes early, borrow only the shortfall and repay as soon as your income comes in.
