Section 424 of the Income-tax Act, 2025 charges simple interest at 1% for every month or part of a month where an assessee fails to pay advance tax or pays less than 90% of the assessed tax, running from 1 April following the tax year.
What section 424 does
Section 424 is the successor to section 234B — the interest that arises when advance tax falls short across the year as a whole, rather than on a particular instalment date.
The trigger has two limbs. Either the assessee failed to pay advance tax under section 404, or the advance tax paid under sections 406 or 407 is less than 90% of the assessed tax. Crossing the 90% mark by 31 March is therefore the practical target.
The rate is 1% for every month or part of a month, running from 1 April following the tax year up to the date of determination of total income under section 270(1), and up to the date of completion of regular assessment where one is made.
The Income-tax Act, 2025 takes effect from 1 April 2026 and applies from tax year 2026-27. The Income-tax Act, 1961 continues to govern every year up to 31 March 2026, including assessments, appeals and penalties for those years, because of the repeal and savings provision in section 536. Figures quoted here are the amounts written into the Act as enacted (with the Gazette corrigenda of 3 September 2025); the annual Finance Act can change rates and thresholds.
Old Act and new Act, side by side
The table below shows what the Income-tax Act, 1961 did and where the same ground is covered in the Income-tax Act, 2025.
| Income-tax Act, 1961 | What it did | Income-tax Act, 2025 |
|---|---|---|
| 234B(1) | Interest where advance tax is short of 90% | 424(1) |
| 234B, Explanation 1 | Definition of assessed tax and its reductions | 424(2) |
| 234B, Explanation 2 | First assessment under reassessment treated as regular | 424(3)(a) |
| 234B(2) | Adjustment for self-assessment tax paid | 424(4) |
| 234A | Interest for late filing | 423 |
| 234C | Interest for deferment | 425 |
Section 424 sub-section by sub-section
Read this alongside the bare text — each heading below is a sub-section of the section as enacted.
Sub-section (1) — when interest arises and for how long
Where an assessee liable to advance tax under section 404 either (a) failed to pay it, or (b) paid less than 90% of the assessed tax under section 406 or 407, simple interest at 1% for every month or part of a month is charged from 1 April following the tax year — (i) up to the date of determination of total income under section 270(1), and (ii) up to the date of completion of regular assessment where one is made. The interest is on the assessed tax where clause (a) applies, or on the shortfall where clause (b) applies.
Sub-section (2) — what 'assessed tax' means
Assessed tax is the tax on total income determined under section 270(1), or under regular assessment where one is made, reduced by: (a) tax deducted or collected at source under Chapter XIX-B on income taken into account in that total income; (b) relief under section 157; (c) relief under section 159(1) for foreign tax paid; (d) relief under section 159(2) for a specified territory; (e) deduction under section 160; and (f) tax credit under sections 206(1)(m) to (p) and 206(2)(e) to (h).
Sub-section (3) — three computational rules
Where an assessment is made for the first time under section 279 — reassessment — it is regarded as a regular assessment for this section. And tax on total income under section 270(1), and under regular assessment, does not include the additional income-tax payable under section 267, which is the tax on an updated return.
Sub-section (4) — credit for tax paid before assessment
Where tax is paid before the date of determination of total income under section 270(1) or before completion of regular assessment, the interest computation is adjusted accordingly. Paying self-assessment tax early therefore reduces the interest, even though it does not prevent the charge arising.
How section 424 differs from sections 423 and 425
Section 423 charges interest for filing late. Section 425 charges for missing an instalment date. Section 424 charges for the annual shortfall against 90% of assessed tax. All three can apply to the same taxpayer in the same year, on different bases.
Worked example
A taxpayer's assessed tax for tax year 2026-27 is finally determined at ₹10,00,000. Tax deducted at source during the year was ₹2,00,000 and advance tax paid was ₹5,50,000. The return is processed under section 270(1) on 20 September 2027.
| Step | Working | Amount |
|---|---|---|
| Tax on total income | — | ₹10,00,000 |
| Less: tax deducted at source | Section 424(2)(a) | (₹2,00,000) |
| Assessed tax | ₹8,00,000 | |
| 90% of assessed tax | The threshold in sub-section (1)(b) | ₹7,20,000 |
| Advance tax actually paid | — | ₹5,50,000 |
| Shortfall | ₹7,20,000 test failed; interest is on ₹8,00,000 − ₹5,50,000 | ₹2,50,000 |
| Period | 1 April 2027 to 20 September 2027 — six months (part months count in full) | 6 months |
| Interest under section 424 | 1% × ₹2,50,000 × 6 | ₹15,000 |
Had advance tax of ₹7,20,000 or more been paid, sub-section (1)(b) would not have been triggered at all. Note that the shortfall for the interest computation is measured against the full assessed tax, not against the 90% threshold — the 90% only decides whether interest arises.
Compliance checklist and due dates
- Target at least 90% of assessed tax through advance tax and TDS by 31 March.
- Reduce assessed tax by TDS, TCS and the reliefs listed in sub-section (2) before applying the 90% test.
- Pay self-assessment tax early — sub-section (4) adjusts the interest for tax paid before determination or assessment.
- Remember part of a month counts as a full month at 1%.
- Exclude section 267 additional income-tax on an updated return from the base, as sub-section (3) requires.
- Expect section 424 and section 425 to apply together where both the instalments and the annual total fell short.
Common mistakes
- Computing interest on the shortfall against 90% rather than against the full assessed tax.
- Forgetting to reduce assessed tax by TDS and TCS before applying the 90% test.
- Assuming a delay of a few days costs a fraction of a month — part months count in full.
- Treating a first-time reassessment under section 279 as outside the section; sub-section (3)(a) deems it a regular assessment.
- Believing section 424 and section 425 are alternatives. They are separate charges.
This is an explanatory guide, not tax advice, and it does not reproduce the section in full. Read the bare text of the section before you rely on it, and check for later amendments, the Income-tax Rules made under the new Act, and CBDT circulars and notifications.
Related Guides
- Section 425 — interest for deferment of advance tax
- Section 408 — advance tax instalments and due dates
- Chapter XIX — collection and recovery of tax
- Income-tax Act 1961 vs 2025 — master comparison
- Section mapping cheat sheet: 1961 to 2025
Key Facts About Section 424 of Income
- Applies in: All states across India, under the relevant central law.
- Mode: Mostly online via the official government portal.
- Typical timeline: Ranges from a few days to a few weeks depending on the case.
- Non-compliance: May attract penalties, interest or late fees.
- Expert help: TaxClue completes the entire process end to end for you.
Which section replaces section 234B?
Section 424 of the Income-tax Act, 2025 — interest for defaults in payment of advance tax.
What is the rate of interest?
Simple interest at 1% for every month or part of a month, under section 424(1).
Over 90% of compliance penalties in India arise from missed due dates — timely handling can save businesses thousands of rupees each year.
Section 424 of Income: a key compliance topic in Indian tax and corporate law that businesses and individuals must understand to remain compliant.