Section 423 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 423 charges simple interest on an assessee whose return of income for a tax year is furnished after the due date or is not furnished. The interest is worked out by a formula, and a Table tells you where the period starts and ends and on which amount of tax the interest runs. This article follows the text as per the Income-tax Act, 2025 as amended by the Finance Act, 2026. If you have a return pending or a late return to file, see our income tax return filing service. For the earlier Act's provision that corresponds to the interest sections, see our note on where the earlier Act's interest provisions sit in the 2025 Act.
Where a return is furnished late or not furnished, the assessee pays simple interest by the formula I = 1% x A x T: "A" is the amount of tax in column E of the Table and "T" is the number of months from the day after the starting date to the end date. The starting date is usually the due date for furnishing the return. Interest already paid under section 266 is set off, and the interest is revised if an appeal or similar order changes the tax. Section 423 was amended by the Finance Act, 2026 (clause (4)(d)(vii) on tax credit).
Section 423(1): the formula
The assessee is liable to pay simple interest as per:
I = 1% x A x T
| Symbol | Meaning |
|---|---|
| I | The interest payable |
| A | The amount of tax on which interest is payable, as specified in sub-section (2) |
| T | The number of months comprised in the period commencing on the date immediately following the starting date and ending on the end date, both specified in sub-section (2) |
The text of the formula says "number of months"; whether a part of a month counts as a month is not stated in sub-section (1), unlike some other interest sections that say "for every month or part of a month". Read the formula as printed.
Section 423(2): the Table
For each circumstance in column B, the starting date is in column C, the ending date in column D, and the tax on which interest is payable in column E.
| Serial number | Circumstances (column B) | Starting date (C) | Ending date (D) | Tax on which interest is payable (E) |
|---|---|---|---|---|
| 1 | Return furnished under section 263(1), (4) or (6), or in response to a notice under section 268(1), after the due date | Due date for furnishing the return of income under section 263(1) | Date of furnishing of the return | (a) Where a regular assessment is not made: tax on the total income as determined under section 270(1), as reduced by tax paid; (b) where a regular assessment is made: tax on the total income determined under regular assessment, as reduced by tax paid |
| 2 | No return furnished under section 263(1), (4) or (6) or in response to a notice under section 268(1) | Due date for furnishing the return of income under section 263(1) | Date of completion of the assessment under section 271 | Tax on the total income determined under regular assessment, as reduced by tax paid |
| 3 | (a) Return required by a notice under section 280 issued after the determination of income under section 270(1), or after the completion of an assessment under section 270(10), 271 or 279; and (b) such return is furnished after the expiry of the time allowed under such notice | The last date of time allowed under such notice | Date of furnishing the return | The amount by which the tax on the total income determined on the basis of such reassessment or recomputation exceeds the tax on the total income determined under section 270(1) or on the basis of the earlier assessment under section 270(1), 271 or 279 |
| 4 | (a) Return required by a notice under section 280 issued after the determination of income under section 270(1) or after the completion of an assessment under section 270(10), 271 or 279; and (b) no return is furnished | The last date of time allowed under such notice | Date of completion of the reassessment or recomputation under section 279 | The amount by which the tax on the total income determined on the basis of such reassessment or recomputation exceeds the tax on the total income determined under section 270(1) or on the basis of the earlier assessment under section 270(1), 271 or 279 |
Section 271 is the provision on assessment to the extent of the Assessing Officer's judgment; the Act uses a different term for it. For the assessment stage see our post on section 270; for reassessment notices see section 280.
Example (amounts and months assumed). Anil Sharma files his return for a tax year after the due date. The tax on his total income determined under section 270(1) is Rs. 80,000 and tax paid (advance tax, tax deducted at source and the other items in the definition of "tax paid") is Rs. 50,000. Row 1(a) applies since no regular assessment is made. A = Rs. 80,000 - Rs. 50,000 = Rs. 30,000. He files four months after the starting date, so T = 4. Interest = 1% x Rs. 30,000 x 4 = Rs. 1,200 (before any set-off in sub-section (4)(c)).
Section 423(3): revision after an order
Where, as a result of an order under section 287, 288, 359, 363, 365(10), 368, 377 or 378, the amount of tax on which interest was payable under sub-sections (1) and (2) has been increased or reduced, the interest shall be increased or reduced accordingly. In a case where:
- (a) the interest is increased, the Assessing Officer serves a notice of demand in the prescribed form specifying the sum payable, which is deemed to be a notice under section 289 and the Act applies accordingly; and
- (b) the interest is reduced, the excess interest paid, if any, is refunded.
The form of notice of demand is left to the Income-tax Rules, 2026 ("as may be prescribed"). For the rectification order, see our post on section 287.
Section 423(4): definitions for the section
| Clause | Rule |
|---|---|
| (a) | Tax on total income as determined under section 270(1) does not include additional income-tax, if any, payable under section 267 |
| (b) | Tax on total income determined under regular assessment does not include the additional income-tax payable under section 267 |
| (c) | Interest payable under sub-section (1) is reduced by the interest, if any, paid under section 266 towards the interest chargeable |
| (d) | "Tax paid" means: (i) advance tax, if any, paid; (ii) any tax deducted or collected at source; (iii) any relief of tax allowed under section 157; (iv) relief under section 159(1) on account of tax paid in a country outside India; (v) relief under section 159(2) on account of tax paid in a specified territory outside India referred to in that section; (vi) any deduction from the Indian income-tax payable allowed under section 160 on account of tax paid in a country outside India; and (vii) any tax credit allowed to be set off as per section 206(2)(e) to (h) and 206(3) and (4) |
Clause (d)(vii) was substituted by the Finance Act, 2026, with effect from 1 April 2026, and section 423 was amended by section 93 of that Act. Clause (d) matters: the larger the "tax paid", the smaller "A", so the interest shrinks as tax paid before filing grows. Advance tax is covered in our articles on sections 403 to 406; credit under section 206 is explained in our post on minimum alternate tax.
Example (amounts assumed). In the earlier example, suppose Anil had paid self-assessment tax before filing, with interest of Rs. 400 under section 266 towards the interest chargeable. Interest under section 423 of Rs. 1,200 is reduced by Rs. 400 under clause (c), leaving Rs. 800.
Section 423(5): first assessment under section 279
Where for any tax year an assessment is made for the first time under section 279, the assessment so made is regarded as a regular assessment for this section. This matters for the Table's rows that refer to "regular assessment". See our post on section 279.
How section 423 sits with sections 424 and 425
Section 423 deals with interest for default in furnishing the return. Interest for default in paying advance tax and interest for deferment of advance tax are separate, in sections 424 and 425; see our posts on interest for advance tax default and deferment interest. Section 423(4)(c) refers to interest paid under section 266 (self-assessment); see section 266.
Need help with a late or missing return?
Interest under section 423 grows each month until the return is furnished, and the amount depends on the "tax paid" items in clause (4)(d). Our income tax return filing team prepares the return, works out the interest and checks credits so you pay only what the Act requires.
Key takeaways
- Interest is simple interest by the formula I = 1% x A x T, where T counts months.
- The starting date is the due date for rows 1 and 2, and the last date allowed under a section 280 notice for rows 3 and 4.
- The ending date is the date of furnishing the return (rows 1 and 3) or the date of completion of the assessment or reassessment (rows 2 and 4).
- Tax paid includes advance tax, tax deducted or collected at source, reliefs under sections 157, 159 and 160 and credits under section 206.
- Interest paid under section 266 is set off against the interest chargeable.
- Interest is revised up or down when an order under the listed sections changes the tax.
Read next
- Section 424: interest for default in payment of advance tax
- Section 425: interest for deferment of advance tax
- Sections 426, 427, 429 and 430: interest on excess refund and fees
- Section 428: fee for late filing
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.