Interest Under Sections 423, 424 & 425: Rules & Calculation

Under the Income-tax Act, different types of interests are levied for various kinds of delays/defaults. In this part, you can gain knowledge about the provisions of section 423, 424 and 425 dealing with interest levied for

(i)delay in filing the return of income;
(ii) non-payment or short payment of advance tax; and
(iii) non-payment or short payment of individual instalment or instalments of advance tax

Basic provisions:

Interest under section 423 is levied for delay in filing the return of income. In other words, if the taxpayer files the return of income after the due date specified in this regard, interest under section 423 will be levied.

Rate of interest:

Interest under section 423 is levied for delay in filing the return of income. Interest is levied at 1% per month or part of a month. The nature of interest is simple interest. In other words, the taxpayer is liable to pay simple interest at 1% per month or part of a month for delay in filing the return of income.

Period of levy of interest:

Interest under section 423 is levied from the period commencing on the date immediately following the due date of filing the return of income and ending on the date of furnishing the return of income. It should be noted that while computing the period of levy of interest, part i.e. fraction of a month is considered as full month

Basic provisions:

Section 424 provides for levy of interest for default in payment of advance tax.

Interest under section 424 is levied in following two cases:

1. When the taxpayer has failed to pay advance tax though he is liable to pay advance tax; or
2. Where the advance tax paid by the taxpayer is less than 90% of the assessed tax

Advance tax shall be payable by the taxpayer during the financial year if estimated tax liability of assessee during that year is ten thousand rupees or more

Rate of interest:

Under section 424, interest for default in payment of advance tax is levied at 1% per month or part of a month. The nature of interest is simple interest. In other words, the taxpayer is liable to pay simple interest at 1% per month or part of a month for default in payment of advance tax.

Period of levy of interest:

Interest under section 424 is levied from the beginning of the 1st April following such tax year till the date of the payment of balance tax liability or till the date of regular assessment.

Basic provisions

Section 425 provides for levy of interest for default in payment of instalment(s) of advance tax. Before getting into the detailed provisions of section 425, lets recall the provisions relating to payment of advance tax by a taxpayer.

Every person whose estimated tax liability for the year exceeds Rs. 10,000, shall pay his tax in advance in the form of “advance tax” by following dates:

Interest under section 425 is levied, if advance tax paid in any instalment(s) is less than the required amount. In other words, interest under section 425 in case of deferment of different instalments of advance tax is levied in following cases:

a. In case of taxpayers other than those who opted for presumptive taxation scheme

• If advance tax paid on or before 15th June is less than 12% of advance tax payable
• If advance tax paid on or before 15th September is less than 36% of advance tax payable
• If advance tax paid on or before 15th December is less than 75% of advance tax payable
• If advance tax paid on or before 15th March is less than 100% of advance tax payable

b. In case of taxpayers who opted for presumptive taxation scheme of Section 58 (Table Sr. no 1) or section 58 (Table Sr. no 3) interest shall be levied if advance tax paid on or before 15th March is less than 100% of advance tax payable.

Interest under section 425 for default in payment of instalment(s) of advance tax is charged at 1% per month or part of a month. The nature of interest is simple interest. In other words, the taxpayer is liable to pay simple interest @ 1% per month or part of a month for short payment/ non-payment of individual instalment(s) of advance tax.

Interest under section 425 is levied for a period of 3 months, in case of short fall in payment of 1st, 2nd and 3rd instalment and for 1 month, in case of short fall in payment of last instalment. Interest under section 425 is levied on the short-paid amount of instalment of advance tax.

Planning your tax payments well in advance helps prevent these interest charges.

For Section 423

To avoid interest under Section 423, file your income tax return on or before the due date. Don’t wait for the last day—upload all required documents early. Cross-check Form 26AS and TDS entries. Make sure your taxes are fully paid before filing. If there’s any pending tax, pay it first. Even if your return is ready, the date of filing matters. Filing just a day late invites a full month’s interest. If you’re expecting a refund, that doesn’t waive the interest.

For Section 424

Avoiding penalties under Section 424 of the Income Tax Act means accurate tax estimates. If your income has components not covered under TDS—like rent, capital gains, or FD interest—factor them in. Pay advance tax on time and keep your payments at least 90% of your total tax liability. This helps stay outside the range of applicability of Section 424 of the Income Tax Act. Review your books quarterly—don’t depend solely on your employer’s TDS. Many get charged with interest because of extra income they didn’t report early. Paying in month of March isn’t enough if you missed instalment before. Avoid surprises by paying ahead.

For Section 425

To escape interest under Section 425, follow the tax payment instalment deadlines. The due dates are non-negotiable. Even if you pay the right amount late, you’ll face interest. That’s why planning is crucial. Estimate your income in April itself. Use previous years as a guide if uncertain. Pay 12%, 36%, 75%, and 100% by the four due dates. Late realisations of income don’t provide relief under Section 424 or Section 425 of the Income Tax Act. Even capital gains earned in February can attract interest if not paid in March.

Be proactive and keep a reminder in your calendar to track your instalments.

Late or uneven tax payments come at a cost. Sections 423, 424, and 425 impose interest that can quietly add up. Knowing when these sections apply helps avoid unnecessary charges. The key lies in timely filing, accurate tax estimation, and sticking to advance tax schedules. Even minor delays or small shortfalls can trigger interest. That’s why planning throughout the year matters, not just in March. Keep your documents updated, review income sources, and pay taxes as income arrives. The fewer the surprises, the lower your interest burden.

Our content given in this article is as per the existing provisions, laws and regulations as per the Income Tax Act, 2025 and Income Tax Rules, 2026 issued thereunder. Tax laws are subject to amendments made thereto from time to time. The benefits / guidance mentioned herewith should not be considered as opinion / view of the Company. We request to seek independent view from your personal tax advisor on applicable tax benefits / guidance under the said article.