Income Tax Act 2025: Section 424 for Tax Year 2026-27

Interest for defaults in payment of advance tax

[Section-424 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]

Section 424(1) of Income Tax Act 2025

424(1) Subject to the other provisions of this section, where, in any tax year, an assessee who is liable to pay advance tax under section 404,––

• 424(1)(a) has failed to pay such tax; or
• 424(1)(b) the advance tax paid by such assessee under the provisions of section 406 or 407 is less than 90% of the assessed tax,

the assessee shall be liable to pay simple interest at the rate of 1% for every month or part of a month, for the period, beginning from the 1st April following such tax year––

• (i) upto the date of determination of total income under section 270(1); or
• (ii) upto the date of completion of regular assessment,

on an amount equal to the assessed tax in case where clause (a) is applicable or, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax in case where clause (b) is applicable.

Section 424(2) of Income Tax Act 2025

424(2) In sub-section (1), “assessed tax” means the tax on the total income determined under section 270(1) and where a regular assessment is made, the tax on the total income determined under such regular assessment as reduced by the amount of,—

• 424(2)(a) any tax deducted or collected at source as per Chapter XIX-B on any income which is subject to such deduction or collection and which is taken into account in computing such total income;
• 424(2)(b) any relief of tax allowed under section 157;
• 424(2)(c) any relief of tax allowed under section 159(1) on account of tax paid in a country outside India;
• 424(2)(d) any relief of tax allowed under section 159(2) on account of tax paid in a specified territory outside India referred to in that section;
• 424(2)(e) any deduction, from the Indian income-tax payable, allowed under section 160, on account of tax paid in a country outside India; and
• 424(2)(f) any tax credit allowed to be set off as per section 206(13).

Section 424(3) of Income Tax Act 2025

424(3) For the purposes of this section,—

• 424(3)(a) where in relation to a tax year, an assessment is made for the first time under section 279, the assessment so made shall be regarded as a regular assessment;
• 424(3)(b) tax on total income as determined under section 270(1) shall not include the additional income-tax, if any, payable under section 267;
• 424(3)(c) tax on the total income determined under such regular assessment shall not include the additional income-tax payable under section 267.

Section 424(4) of Income Tax Act 2025

424(4) Where, before the date of determination of total income under section 270(1) or completion of a regular assessment, tax is paid by the assessee under section 266 or otherwise,—

• 424(4)(a) interest shall be calculated as per the foregoing provisions of this section up to the date on which the tax is so paid, and reduced by the interest, if any, paid under section 266 towards the interest chargeable under this section;
• 424(4)(b) thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax.

Section 424(5) of Income Tax Act 2025

424(5) Where, the amount on which interest was payable in respect of shortfall in payment of advance tax for any tax year under sub-section (1) is increased, as a result of an order of reassessment or recomputation under section 279, the assessee shall be liable to pay simple interest at the rate of 1% for every month or part of a month comprised in the period commencing on the 1st April immediately following such tax year and ending on the date of the reassessment or recomputation on such amount determined as per formula below:––

A = B-C
where,—

• A = the increased amount on which interest was payable in respect of shortfall in payment of advance tax for any tax year as a result of reassessment or recomputation—
• B = tax on total income determined on the basis of reassessment or recomputation;
• C = tax on total income determined under section 270(1) or regular assessment as referred to in sub-section (1).

Section 424(6) of Income Tax Act 2025

424(6) Where, as a result of an order under section 287 or 288 or 359 or 363 or 365(10) or 368 or 377 or 378, the amount on which interest was payable under sub-section (1) or (3) has been increased or reduced, the interest shall be increased or reduced accordingly, and—

• 424(6)(a) in a case where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in the form as prescribed specifying the sum payable and such notice of demand shall be deemed to be a notice under section 289 and the provisions of this Act shall apply accordingly;
• 424(6)(b) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded.

FAQs on Section 424 of Income Tax Act 2025

When is an assessee liable to pay interest for defaults in advance tax payment under Section 424(1)?
An assessee is liable if they are required to pay advance tax under section 404 and either fail to pay it, or pay less than 90% of the assessed tax through advance tax payments under section 406 or 407.

What is the rate of interest applicable for default in advance tax payment?
The interest is charged at a simple rate of 1% for every month or part of a month.

From which date does the interest under Section 424 start accruing?
Interest starts accruing from 1st April following the tax year in which the default occurs.

Until when is interest under Section 424 payable?
It is payable until the date of determination of total income under section 270(1) or the date of completion of regular assessment, whichever is earlier.

What is meant by “assessed tax” in Section 424(2)?
“Assessed tax” is the tax on the total income determined under section 270(1), or in regular assessment, reduced by specified amounts like TDS/TCS, reliefs under sections 157, 159, 160, and set-off of tax credit under section 206(13).

Are any deductions allowed while computing assessed tax for interest purposes?
Yes, deductions are allowed for tax deducted or collected at source, certain foreign tax reliefs, and specified tax credits.

Does the assessed tax include additional income-tax under section 267?
No, assessed tax excludes additional income-tax payable under section 267.

How is regular assessment defined in Section 424(3)?
An assessment made for the first time under section 279 is considered a regular assessment for the purposes of this section.

If tax is paid before assessment, how is interest under Section 424 adjusted?
Interest is calculated up to the date of such payment and is reduced by any interest already paid under section 266. Thereafter, interest is charged on the remaining shortfall.

What happens if assessed tax increases due to reassessment or recomputation?
If assessed tax increases due to reassessment under section 279, additional interest is payable at 1% per month on the increased amount from 1st April following the tax year to the date of reassessment.

How is the additional amount on which interest is payable due to reassessment calculated?
It is calculated using the formula A = B – C, where A is the increased amount, B is tax on total income post-reassessment, and C is tax determined earlier.

If a rectification or appellate order changes the assessed tax, how is interest affected?
The interest is increased or reduced accordingly. If increased, a demand notice is served; if reduced, excess interest paid is refunded.

Is a fresh notice served when interest increases due to an appellate or revision order?
Yes, the Assessing Officer will serve a notice of demand specifying the increased interest, which is treated as a notice under section 289.

Are there provisions for refund of excess interest if the assessed tax is reduced?
Yes, if interest already paid exceeds the revised liability, the excess will be refunded.