Section 40 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 40 is a short bridge to the Income-tax Act. It does not set an interest rate of its own. It says that when foreign income has not been disclosed in the return, or the return has not been furnished, or advance tax on undisclosed foreign income has not been paid, interest is chargeable under the Income-tax Act sections that it names. The text is read from the Act as enacted and published in the Gazette of India on 27 May 2015.
Section 40(1): where income from a source outside India has not been disclosed in the return furnished under section 139(1) of the Income-tax Act, or the return has not been furnished, interest is chargeable under section 234A of that Act. Section 40(2): where advance tax on undisclosed income from a source outside India has not been paid under Part C of Chapter XVII of that Act, interest is chargeable under sections 234B and 234C. This Act states no interest rate itself.
Sub-section (1): interest for a missing or incomplete return
Section 40(1) reads, in substance: where the assessee has any income from a source outside India which has not been disclosed in the return of income furnished under sub-section (1) of section 139 of the Income-tax Act, or the return of income has not been furnished under the said sub-section, interest shall be chargeable in accordance with the provisions of section 234A of the Income-tax Act.
The sub-section covers two situations:
- A return was furnished, but the foreign income was not disclosed in it.
- No return was furnished under section 139(1).
In both, the Act sends the reader to section 234A of the Income-tax Act, 1961, as printed in 2015. The Act does not repeat what that section provides. It does not state the rate, the period of default or the base on which interest is worked out, and this article states none of those either. Where you need those, check section 234A of the Income-tax Act, or the corresponding provision of the current income-tax law, as applicable to the year.
The first situation links with head (a) of section 4, which deals with income not disclosed in a return furnished in time, and the second with head (b), where a required return was not furnished. Section 40(1) is narrower in one respect: it names the return under sub-section (1) of section 139, while section 4 also refers to sub-sections (4) and (5) of section 139. The Act prints the difference as it is and this article does not harmonise the two.
If you are unsure whether your return fully reflected foreign income, a review of the filing position is the first step. Our income tax return filing team can go through the return with you.
Sub-section (2): interest for advance tax
Section 40(2) reads, in substance: where the assessee has any undisclosed income from a source outside India and the advance tax on such income has not been paid in accordance with Part C of Chapter XVII of the Income-tax Act, interest shall be chargeable in accordance with the provisions of sections 234B and 234C of the Income-tax Act.
| Sub-section | Trigger | Income-tax Act provision named |
|---|---|---|
| (1) | Foreign-source income not disclosed in the return under section 139(1), or no such return furnished | Section 234A |
| (2) | Advance tax on undisclosed foreign-source income not paid in accordance with Part C of Chapter XVII | Sections 234B and 234C |
The heading of the section speaks of "payment or deferment of advance tax". The words of sub-section (2) say advance tax "has not been paid in accordance with" Part C of Chapter XVII. The Act does not say more about deferment than the heading. The sub-section refers to Part C of Chapter XVII as printed, and this Act does not itself describe the advance-tax scheme.
What the section does not say
Section 40 is silent on several points, and the safe reading is to leave them open:
- It prints no rate of interest and no period for which interest runs.
- It does not say whether interest under section 40 is added to, or is separate from, the tax charged under section 3.
- It does not say how advance tax is to be computed on income that was undisclosed.
- It applies the named sections of the Income-tax Act, 1961 as printed in 2015. Whether those sections were later changed is not in the sources, so the reader should check the provisions in force for the year.
On a related point, the Act's own penalties are separate from interest. Penalty is dealt with in section 41 and in the later sections of Chapter IV.
An example
Neha Kapoor, a resident other than not ordinarily resident, earned interest from a foreign deposit in a year. She filed her return under section 139(1) but did not include that interest. Under section 40(1), interest is chargeable in accordance with section 234A of the Income-tax Act because the foreign income was not disclosed in the return. If she had not filed any return under that sub-section, the same sub-section would apply. Separately, if the interest was undisclosed income and advance tax on it was not paid in accordance with Part C of Chapter XVII, section 40(2) sends the question of interest to sections 234B and 234C. The amount in each case depends on those sections, not on anything printed in this Act.
For reporting of foreign assets in the return, see our guide on Schedule FA for foreign assets and income.
Need help with foreign income in your return?
Interest follows the return and the advance tax position, so the first thing to settle is what your return shows about foreign income. Our income tax return filing service can help you go through the return and the foreign income that is, or is not, in it.
Key takeaways
- Section 40(1) applies section 234A of the Income-tax Act where foreign-source income is not disclosed in the return under section 139(1), or no return is furnished.
- Section 40(2) applies sections 234B and 234C where advance tax on undisclosed foreign-source income is not paid in accordance with Part C of Chapter XVII of the Income-tax Act.
- The Act prints no interest rate; the rate and method are in the Income-tax Act sections named.
- Section 40(1) names section 139(1) only, while section 4 also names sub-sections (4) and (5).
- Penalty under the Act is separate and sits in later sections.
- Later Finance Act amendments to section 40 must be checked before acting. The references to sections 139, 234A, 234B and 234C and Part C of Chapter XVII of the Income-tax Act, 1961 are as printed in 2015; check the corresponding provision of the current income-tax law.
Read next
- Section 41: penalty in relation to undisclosed foreign income and asset
- Section 4: scope of total undisclosed foreign income and asset
- Section 3: charge of tax on undisclosed foreign income and asset
- Foreign asset reporting in the ITR
Disclaimer: Based on the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 as enacted and published in the Gazette of India on 27 May 2015, and on the Rules of 2015 as notified on 2 July 2015, as consulted on 2 October 2026. Later Finance Act amendments, amendment rules and the current income-tax law should be checked. This article is general information, not legal advice; check the official text before acting.