Section 424 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 424 charges simple interest on an assessee who was liable to pay advance tax and either did not pay it or paid less than 90% of the assessed tax. This article explains it as per the Income-tax Act, 2025 as amended by the Finance Act, 2026; later amendments, rules and notifications should be checked separately.
If an assessee liable to pay advance tax under section 404 paid none, or paid less than 90% of the "assessed tax", he is liable to simple interest at 1% for every month or part of a month, from 1 April following the tax year up to the date of determination of total income under section 270(1) and, where a regular assessment is made, up to its completion. The Finance Act, 2026 substituted clause (f) of the "assessed tax" definition in sub-section (2), w.e.f. 1-4-2026.
Section 424(1): when the interest arises
Subject to the other provisions of the section, the assessee is liable where, in any tax year, he is liable to pay advance tax under section 404 and:
- (a) has failed to pay such tax; or
- (b) the advance tax paid under section 406 or 407 is less than 90% of the assessed tax.
The interest is 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, up to:
- (i) the date of determination of total income under section 270(1); and
- (ii) the date of completion of regular assessment, where a regular assessment is made.
| Case | Amount on which interest is charged |
|---|---|
| Clause (a): no advance tax paid | An amount equal to the assessed tax |
| Clause (b): advance tax paid but less than 90% of assessed tax | The amount by which the advance tax paid falls short of the assessed tax |
Note the second row: once the 90% test is failed, interest runs on the whole shortfall against the assessed tax, not merely on the gap to 90%.
Who is liable to pay advance tax and when are explained in sections 403 to 406 and section 408. To compute your instalments, our advance tax calculation service can help.
Section 424(2): what "assessed tax" means
"Assessed tax" is 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 that assessment, as reduced by:
| Clause | Reduction |
|---|---|
| (a) | Any tax deducted or collected at source as per Chapter XIX-B on income subject to such deduction or collection and taken into account in computing the total income |
| (b) | Any relief of tax allowed under section 157 |
| (c) | Any relief of tax allowed under section 159(1) on account of tax paid in a country outside India |
| (d) | Any relief of tax allowed under section 159(2) on account of tax paid in a specified territory outside India |
| (e) | Any deduction, from the Indian income-tax payable, allowed under section 160 on account of tax paid in a country outside India |
| (f) | Any tax credit allowed to be set off as per section 206(2)(e) to (h) and 206(3) and (4) |
Clause (f) was substituted by the Finance Act, 2026, w.e.f. 1-4-2026; the footnote prints the replaced wording, which cited section 206(1)(m) to (p) and 206(2)(e) to (h). See our article on section 206 on minimum alternate tax and alternate minimum tax for the credits. For section 157 and section 159 see our section-wise notes.
Section 424(3): what counts
For this section:
- (a) an assessment made for the first time under section 279 is regarded as a regular assessment;
- (b) tax on the total income determined under section 270(1) does not include the additional income-tax payable under section 267; and
- (c) tax on the total income determined under the regular assessment likewise excludes the additional income-tax payable under section 267.
The first-time assessment under section 279 is dealt with in our article on section 279, and the updated return in section 267.
Section 424(4): tax paid before determination
Where, before the date of determination under section 270(1) or completion of a regular assessment, tax is paid under section 266 or otherwise:
- (a) interest is calculated as above up to the date on which the tax is so paid, reduced by the interest, if any, paid under section 266 towards the interest chargeable under this section;
- (b) thereafter interest is calculated at the same rate on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax.
Section 266 is explained in our article on self-assessment.
Section 424(5): increase on reassessment
Where, because of an order of reassessment or recomputation under section 279, the amount on which interest was payable under sub-section (1) increases, simple interest at 1% for every month or part of a month is payable on the increase for the period commencing on the 1st April immediately following the tax year and ending on the date of reassessment or recomputation. The increased amount is A = B - C, where B is the tax on total income determined on reassessment or recomputation and C is the tax on total income determined under section 270(1) or the regular assessment referred to in sub-section (1).
Section 424(6): orders that change the amount
Where, as a result of an order under section 287, 288, 359, 363, 365(10), 368, 377 or 378, the amount on which interest was payable under sub-section (1) or (3) has increased or reduced, the interest is increased or reduced accordingly:
- (a) if increased, the Assessing Officer serves a notice of demand, deemed a notice under section 289;
- (b) if reduced, the excess interest paid, if any, is refunded.
Worked example
Neha Foods, an invented company, is liable to pay advance tax under section 404 for a tax year. All figures and dates are assumed.
- Assessed tax: Rs. 2,00,000 (after the reductions in sub-section (2)).
- 90% of assessed tax: Rs. 1,80,000.
- Advance tax paid: Rs. 1,60,000, which is less than 90%, so clause (b) applies.
- Shortfall against assessed tax: Rs. 2,00,000 - Rs. 1,60,000 = Rs. 40,000.
- Total income is determined under section 270(1) on 15 September following the tax year. Months from 1 April: April, May, June, July and August are five months, and 1 to 15 September is a part of a month, so six months.
- Interest: Rs. 40,000 x 1% x 6 = Rs. 2,400.
Had Neha Foods paid nothing, clause (a) would apply and the 1% would run on the whole Rs. 2,00,000.
Common mistakes
- Reading the 90% test as the base for interest. The base is the shortfall against assessed tax.
- Forgetting that a part of a month counts as a full month.
- Counting interest from the date of the instalment; this section counts from 1 April following the tax year.
- Missing that tax paid under section 266 stops the clock on the earlier base under sub-section (4).
Need help?
Estimating advance tax early avoids interest. Our income tax return filing team can reconcile payments and credits before the return is filed.
Key takeaways
- Interest at 1% for every month or part of a month, simple, from 1 April following the tax year.
- Triggered by no payment or payment below 90% of assessed tax.
- "Assessed tax" is reduced by tax deducted or collected, reliefs and the listed credits; clause (f) was substituted by the Finance Act, 2026, w.e.f. 1-4-2026.
- Reassessment under section 279 and later orders can increase or reduce the interest.
Read next
- Section 425: interest for deferment of advance tax
- Section 423: interest for default in furnishing return of income
- Section 408: advance tax instalments
- Sections 407, 409 and 410: advance tax on order, default and credit
- Section 428: fee for default in furnishing return
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.