Section 423 — Interest for defaults in furnishing return of income. Successor to s.234A of the 1961 Act.
Section 423 is in Chapter XIX — Collection and Recovery of Tax, which runs from section 390 to section 430.
Sub-section (1) makes an assessee whose return for a tax year is furnished after the due date, or is not furnished at all, liable to simple interest computed by the formula I = 1% × A × T, where I is the interest payable, A is the amount of tax on which interest is payable as specified in sub-section (2), and T is the number of months comprised in the period beginning on the day immediately following the starting date and ending on the end date, both specified in sub-section (2).
Sub-section (2) carries a Table with four entries fixing the starting date, ending date and the amount A for each circumstance. Entry 1, where the return is furnished after the due date under section 263(1), (4) or (6) or in response to a notice under section 268(1): from the due date under section 263(1) to the date of furnishing the return, on tax on the total income determined under section 270(1) as reduced by tax paid where no regular assessment is made, or on tax on the total income determined under regular assessment as reduced by tax paid where one is made. Entry 2, where no such return has been furnished: from the same due date to the date of completion of the assessment under section 271, on tax on the total income determined under regular assessment as reduced by tax paid. Entry 3, where a return required by a notice under section 280 issued after a determination under section 270(1) or after completion of an assessment under section 270(10), 271 or 279 is furnished after the time allowed by that notice: from the last date allowed under the notice to the date of furnishing, on the amount by which tax on the total income determined on the reassessment or recomputation exceeds tax on the income determined under section 270(1) or on the earlier assessment. Entry 4 is the same as entry 3 where no return is furnished, running to the date of completion of the reassessment or recomputation under section 279.
Sub-section (3) requires the interest to be increased or reduced where the tax on which it was payable is increased or reduced by an order under section 287, 288, 359, 363, 365(10), 368, 377 or 378; on an increase the Assessing Officer serves a notice of demand in the prescribed form, deemed to be a notice under section 289, and on a reduction the excess interest paid is refunded.
Sub-section (4) fixes the components. Tax on total income under section 270(1), and tax determined under regular assessment, exclude the additional income-tax payable under section 267. Interest under sub-section (1) is reduced by any interest paid under section 266 towards the interest chargeable. "Tax paid" means advance tax paid, tax deducted or collected at source, relief under section 157, relief under section 159(1) and 159(2), deduction under section 160, and, under clause (d)(vii) as substituted by Act No. 4 of 2026 with effect from 1 April 2026, any tax credit allowed to be set off as per section 206(2)(e) to (h) and 206(3) and (4). Sub-section (5) treats an assessment made for the first time under section 279 as a regular assessment for this section.
A return filed late, or not filed, keeps money with the assessee that should have reached the exchequer, and the section charges for that period at a fixed monthly rate rather than leaving it to be argued. The Table exists because the period and the base differ with the circumstance — a late return is measured to the date of filing, a return never filed to the completion of assessment, and a reassessment charge only on the increase over what was determined before. Sub-section (3) keeps the charge tied to the tax as finally determined.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Rate of interest | 1% per month, simple | Applied as I = 1% × A × T, where T is the number of months comprised in the period specified in sub-section (2) | Sub-section (1) |
| Starting date where a return is furnished late or not furnished | Due date for furnishing the return of income under section 263(1) | Interest runs from the day immediately following that date; applies to entries 1 and 2 of the Table | Sub-section (2), Table Sl. Nos. 1 and 2, column C |
| Ending date where the return is furnished late | Date of furnishing of the return | Return furnished under section 263(1), (4) or (6) or in response to a notice under section 268(1) after the due date | Sub-section (2), Table Sl. No. 1, column D |
| Ending date where no return is furnished | Date of completion of the assessment under section 271 | No return furnished under section 263(1), (4) or (6) or in response to a notice under section 268(1) | Sub-section (2), Table Sl. No. 2, column D |
| Starting date for a section 280 notice case | The last date of time allowed under such notice | Notice under section 280 issued after determination under section 270(1) or completion of assessment under section 270(10), 271 or 279 | Sub-section (2), Table Sl. Nos. 3 and 4, column C |
| Base amount in a reassessment case | The excess of tax on the total income determined on reassessment or recomputation over tax on the income determined under section 270(1) or on the earlier assessment | Only the increase bears interest, not the whole reassessed tax | Sub-section (2), Table Sl. Nos. 3 and 4, column E |
The rate is 1% for each month in the period and the interest is simple, so the charge is linear and does not compound. What decides the amount is the base A, and it is a net figure: sub-section (4)(d) defines "tax paid" to take out advance tax, tax deducted or collected at source, the reliefs under sections 157, 159(1) and 159(2) and the deduction under section 160. Two further adjustments are easy to miss — the additional income-tax under section 267 is excluded from the base, and interest already paid under section 266 towards the interest chargeable reduces the charge. Entries 3 and 4 are limited to the increase over what had already been determined, so a reassessment does not restart interest on the whole tax. Clause (4)(d)(vii) was substituted by Act No. 4 of 2026 with effect from 1 April 2026 and now refers to credit set off as per section 206(2)(e) to (h) and 206(3) and (4), where it previously referred to section 206(1)(m) to (p) and 206(2)(e) to (h) — a consequence of the company minimum alternate tax credit clauses in section 206(1) having gone.
A firm's return is due under section 263(1) on 31 July and is furnished on 30 November. On the total income determined under section 270(1) the tax is Rs. 5,00,000, and its tax paid — advance tax and tax deducted at source — is Rs. 3,00,000, so A is Rs. 2,00,000. T is the number of months comprised in the period from 1 August to 30 November, that is four. The interest under sub-section (1) is 1% × Rs. 2,00,000 × 4, or Rs. 8,000. Had the firm filed no return at all, entry 2 of the Table would run the period to the date of completion of the assessment under section 271 instead, on the tax determined on regular assessment as reduced by tax paid.
In the interest line of an intimation or assessment computation, and in the notice of demand that follows; where the interest is increased on an appellate or revisional order, sub-section (3)(a) requires a fresh notice of demand in the prescribed form, deemed to be a notice under section 289.
the assessee shall be liable to pay simple interest as per the following formula:—
number of months comprised in the period commencing on the date immediately following the starting date and ending on the end date
any tax credit allowed to be set off as per section 206(2)(e) to (h) and 206(3) and (4).
See the full 1961 to 2025 concordance.
See the circulars index.
See the notifications index.
