Key Highlights
- Interest on tax due: 1% per month on unpaid tax from due date (Section 419)
- Interest for short advance tax: 1% per month — Section 418
- Deferral interest (advance tax short): 3-month interest when advance tax <90% of assessed tax — Section 417
- TDS non-deduction interest: 1% per month — Section 415
- TDS non-deposit interest: 1.5% per month — Section 416
- Interest is mandatory — Assessing Officer has no discretion to waive
Legal Reference
Sections 415-420, Income Tax Act, 2025 | Corresponds to Sections 234A, 234B, 234C, 201 of ITA 19611. Section 419: Interest for Late Filing of ITR (234A Equivalent)
If you file your ITR after the due date AND you had unpaid tax at the due date:
- Interest at 1% per month (or part month) on the amount of unpaid tax
- Runs from the due date of filing to the actual date of filing
- Even one day late = full month interest
- No interest if tax was fully paid by the due date (even if ITR filed late)
2. Section 418: Interest for Short Payment of Advance Tax (234B Equivalent)
If advance tax paid is less than 90% of assessed tax:
- Interest at 1% per month on the shortfall
- Runs from 1 April (start of assessment year) to date of actual payment/assessment
- Calculated on (assessed tax minus TDS minus advance tax paid)
3. Section 417: Deferral Interest on Advance Tax Instalments (234C Equivalent)
If advance tax is not paid in the correct quarterly instalments:
| Instalment | Due Date | Minimum % Required | Interest if Shortfall |
|---|---|---|---|
| 1st instalment | 15 June | 15% of assessed tax | 1% per month for 3 months |
| 2nd instalment | 15 September | 45% of assessed tax | 1% per month for 3 months |
| 3rd instalment | 15 December | 75% of assessed tax | 1% per month for 3 months |
| 4th instalment | 15 March | 100% of assessed tax | 1% per month for 1 month |
4. TDS Interest: Sections 415 and 416
| Default | Interest Rate | Period |
|---|---|---|
| Non-deduction of TDS (Section 415) | 1% per month | From date tax was deductible to date of actual deduction |
| Non-deposit of TDS (Section 416) | 1.5% per month | From date of deduction to date of deposit |
5. Interest Computation Example
Illustrative only. Sunita has tax liability of Rs 5 lakh for Tax Year 2026-27. She files her ITR on 31 August 2027 (1 month late). She paid advance tax of Rs 4 lakh (80% of liability). Self-assessment tax of Rs 1 lakh paid on 31 August 2027.
- Section 418 interest: 10% shortfall (Rs 5L minus Rs 4.5L = Rs 50K short of 90%). Interest: Rs 50,000 x 1% x 5 months (Apr-Aug) = Rs 2,500.
- Section 419 interest: Rs 1,00,000 unpaid at 31 July x 1% x 1 month = Rs 1,000.
- Total interest = Rs 3,500 in addition to tax due.
6. How to Minimise Interest
- Pay advance tax in correct quarterly instalments — at least 15%/45%/75%/100% by each due date
- Ensure advance tax covers at least 90% of final tax liability to avoid Section 418 interest
- File ITR by the due date (31 July) to avoid Section 419 interest
- Deposit TDS by 7th of following month to avoid Section 416 interest
7. Why TaxClue
Interest under ITA 2025 is automatic and mandatory — but it can be minimised with proper planning. TaxClue provides advance tax computation, quarterly reminder services, and interest reconciliation. Contact us for advance tax and TDS compliance under ITA 2025.
Disclaimer
This article is for general informational and educational purposes only. It does not constitute legal, financial, or professional tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any decisions. TaxClue Consultech Pvt Ltd accepts no liability. All case studies and examples in this article are illustrative only and do not represent actual persons or transactions.