Interest for Late Return and Advance Tax Default under the Income-tax Act, 2025: Sections 423, 424, 425 and 411 (Tax Year 2026-27)
CA Meet Dhrangadhariya 
July 28, 2026
CA Meet Dhrangadhariya July 28, 2026
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Last updated: 28 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP
Quick summary
Interest on tax is charged when a return is late, when advance tax is short or late, and when a demand is not paid on time. In the Income-tax Act, 2025, which applies from 01/04/2026, these sections replace the old 234A, 234B, 234C and 220(2).
| Old section | New section | When it applies | Rate |
|---|---|---|---|
| 234A | 423 | Return furnished late or not furnished | 1% a month |
| 234B | 424 | No advance tax, or advance tax below 90% of assessed tax | 1% a month or part of a month |
| 234C | 425 | Instalment shortfall on 15 June, 15 September, 15 December or 15 March | 3% (1% for March) on the shortfall |
| 220(2) | 411(3) | Demand not paid within thirty days of notice | 1% a month or part of a month |
Simple interest is 1% x A x T, where A is the tax on which interest is payable and T is the number of months from the starting date to the ending date in the table below (section 423(1)).
| Case | Interest runs from | Interest runs to | Tax on which interest is charged |
|---|---|---|---|
| Return furnished late (under section 263(1), (4) or (6), or on a notice under section 268(1)) | The due date under section 263(1) | The date the return is furnished | Tax on the income determined (or on regular assessment) less tax paid |
| No return furnished | The due date | Completion of the assessment under section 271 | Tax on the income in regular assessment less tax paid |
| Return required on a reassessment notice (section 280) furnished late | End of the time allowed in the notice | Date of furnishing | Extra tax on the reassessed income |
| Return required on a reassessment notice, none furnished | End of the time allowed in the notice | Completion of the reassessment | Extra tax on the reassessed income |
“Tax paid” means advance tax, TDS and TCS, tax relief and foreign tax credit (section 423(4)(d)). Additional tax under section 267 is left out of the base.
Example. The tax left after TDS and advance tax is ₹40,000 and the return is filed three months after the due date. Interest is 1% x ₹40,000 x 3 = ₹1,200. The section multiplies by “the number of months” and does not say in terms how a part of a month is counted, so for a filing date that is not a whole number of months after the due date, check how the portal counts it before paying.
An assessee liable to pay advance tax who paid none, or paid less than 90% of the assessed tax, pays simple interest at 1% for every month or part of a month, from 1 April after the tax year up to the date the total income is determined under section 270(1) (processing of the return) or the regular assessment is completed (section 424(1)).
Example. Assessed tax is ₹1,50,000 and advance tax paid is ₹1,00,000. This is below 90% (₹1,35,000), so interest runs on the shortfall of ₹50,000 at 1% for each month or part from 1 April. If the return is processed after four months, the interest is ₹50,000 x 1% x 4 = ₹2,000, less any part paid earlier with the return.
The Table in section 425(1) compares advance tax paid by each due date with the tax due on the returned income (the tax on the income declared in the return less TDS, TCS and reliefs, section 425(5)):
| Due date | Required (of tax due on returned income) | Interest on the shortfall |
|---|---|---|
| 15 June | 15% | 3% |
| 15 September | 45% | 3% |
| 15 December | 75% | 3% |
| 15 March | 100% | 1% |
No interest is charged for the first two instalments if the advance tax paid is 12% or more by 15 June and 36% or more by 15 September (section 425(2)).
Presumptive taxpayers declaring profit under section 58(2) (Table Sl. No. 1 or 3) are checked only against the tax due by 15 March, and pay simple interest at 1% on that shortfall (section 425(3)).
Excused shortfall (section 425(4)). No interest is charged on a shortfall that arises because of under-estimating, or not estimating, capital gains, winnings from lotteries and games (section 2(49)(n)), business income arising or accruing for the first time, or dividend (other than deemed dividend under section 2(40)(e)), provided the tax on that income is paid in full in the remaining instalments or by 31 March.
Example. Tax due on the returned income is ₹1,50,000. By 15 June the person has paid ₹10,000, which is less than 12% (₹18,000). The required amount by 15 June is 15% = ₹22,500 and the shortfall is ₹12,500, so interest is 3% x ₹12,500 = ₹375. If ₹18,000 had been paid, no interest would arise for that instalment.
A demand notice under section 289 must be paid within thirty days of service, or a shorter period set with the approval of the Joint Commissioner. If not, simple interest at 1% for every month or part of a month runs from the day after that period until payment (section 411(3)). Finance Act 2026 reworded the sub-section and said no interest accrues on a demand arising from penalty under section 439 up to the date of the appellate order. A reduction or waiver on an application for genuine hardship is possible (section 411(7)), and the order is to be passed within twelve months from the end of the month of the application (section 411(8)). The Assessing Officer can extend the time or allow instalments on an application made before the due date (section 411(5)).
Interest and any fee must be paid before the return is furnished, with proof of payment. A short payment is adjusted against fee first, then interest, then tax (section 266(3)). Interest under section 423 for this purpose is computed on the tax on the total income declared in the return less advance tax, TDS, TCS and reliefs (section 266(4)).
We compute interest, check portal calculations and file waiver applications for hardship cases. Please reach out to our team and we will be happy to assist.
Section 423 (default in furnishing the return, old 234A), section 424 (default in payment of advance tax, old 234B), section 425 (deferment of advance tax, old 234C). Interest on tax demanded by notice and not paid in time (old 220(2)) is in section 411(3).
Simple interest of 1% of the unpaid tax for each month, from the day after the due date of the return under section 263(1) to the date the return is furnished (to the completion of assessment if no return is furnished). The amount is the tax on the income as determined (or in regular assessment) less tax already paid, which includes advance tax, TDS and TCS and tax relief (section 423). The text multiplies by the number of months; it does not say in terms how a part of a month is treated.
If you were liable to pay advance tax and paid none, or paid less than 90% of the assessed tax, simple interest of 1% for each month or part of a month runs from 1 April after the tax year until the income is determined or regular assessment is completed. It is charged on the whole assessed tax if nothing was paid, or on the shortfall otherwise (section 424).
If the advance tax paid is at least 12% of the tax due on the returned income by 15 June and at least 36% by 15 September (section 425(2)). Interest is also not charged for a shortfall caused by under-estimating or not estimating capital gains, winnings, business income arising for the first time or dividend (other than deemed dividend) if the tax on that income is paid in the remaining instalments or by 31 March (section 425(4)).
Yes. Interest and fee for delay in filing or advance tax default must be paid before furnishing the return, with proof of payment, and any short payment is adjusted first to fee, then interest, then tax (section 266).
The Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner can reduce or waive interest under section 411(3) on an application if payment would cause genuine hardship, the default was due to circumstances beyond the assessee’s control, and the assessee has co-operated in the inquiry and recovery proceedings (section 411(7)).
This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.
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