Section 424 — Interest for defaults in payment of advance tax. Successor to s.234B of the 1961 Act.
Section 424 is in Chapter XIX — Collection and Recovery of Tax, which runs from section 390 to section 430.
Sub-section (1) charges simple interest at 1% for every month or part of a month where an assessee liable to advance tax under section 404 either failed to pay it, or paid less than 90% of the assessed tax under section 406 or 407 — running 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, on the assessed tax in the first case and on the shortfall in the second. Sub-section (2) defines "assessed tax" as the tax on total income so determined, reduced by tax deducted or collected at source under Chapter XIX-B on income taken into account, relief under sections 157, 159(1), 159(2) and 160, and — under clause (f) as substituted by Act No. 4 of 2026 with effect from 1 April 2026 — tax credit set off under section 206(2)(e) to (h) and section 206(3) and (4). Sub-section (3) treats a first-time assessment under section 279 as a regular assessment and excludes the additional income-tax under section 267 from the tax on total income for both limbs. Sub-section (4) deals with tax paid under section 266 or otherwise before the determination or the regular assessment, computing interest up to that date, reducing it by interest already paid under section 266, and running interest thereafter on the remaining shortfall. Sub-section (5) charges further interest at the same 1% rate where reassessment or recomputation under section 279 increases the amount, on B minus C — reassessment tax less the tax previously determined — for the period from 1 April following the tax year to the date of reassessment. Sub-section (6) adjusts the interest up or down following an order under section 287, 288, 359, 363, 365(10), 368, 377 or 378, with a prescribed notice of demand deemed to be under section 289 where it increases and a refund of excess interest where it reduces.
Advance tax is meant to be paid during the year, and this section prices the failure to do so at a monthly rate on the shortfall from the year end until the liability is determined. The 90% tolerance recognises that the assessee is working on an estimate, and the later sub-sections keep the interest tracking the true liability as it changes through reassessment and appeal.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Rate of interest for advance tax default | 1% simple interest for every month or part of a month | On the assessed tax where no advance tax was paid, or on the shortfall where less than 90% of assessed tax was paid | 424(1) |
| Tolerance below which interest is not charged | 90% of the assessed tax | Advance tax paid under section 406 or 407 must reach this level; falling short brings the whole shortfall into charge | 424(1)(b) |
| Start of the interest period | 1 April following the tax year | Running to the date of determination of total income under section 270(1), or to completion of regular assessment where one is made | 424(1) |
| Rate of additional interest on reassessment | 1% simple interest for every month or part of a month | On A = B – C, being reassessment tax less the tax determined under section 270(1) or regular assessment; from 1 April following the tax year to the date of reassessment or recomputation | 424(5) |
The 90% figure is the number to plan against: paying anything less than 90% of the tax eventually assessed exposes the entire shortfall, not just the amount below 90%, to 1% a month from 1 April following the tax year. When testing that, reduce the assessed tax by TDS and TCS on income actually taken into account, by the reliefs under sections 157, 159 and 160, and by tax credit set off under section 206(2)(e) to (h) and section 206(3) and (4) — the last of these was rewritten by Act No. 4 of 2026 with effect from 1 April 2026, and the old cross-reference to section 206(1)(m) to (p) no longer exists. Paying tax under section 266 before determination stops the clock on that amount and interest continues only on what is still short. Interest is not final at assessment: reassessment adds more under sub-section (5), and appellate orders adjust it in either direction, with a fresh notice of demand deemed to be under section 289 if it increases.
An individual's assessed tax for a tax year comes to Rs 10 lakh and his advance tax payments total Rs 8.5 lakh, which is 85% of it. Falling below the 90% mark in clause (b) brings simple interest at 1% for every month or part of a month on the whole shortfall of Rs 1.5 lakh — not merely on the amount by which he fell short of 90% — running from 1 April following the tax year to the determination under section 270(1) or completion of the regular assessment. Had he paid Rs 9 lakh, the test would have been met and no interest would arise. The Rs 10 lakh is itself a net figure: sub-section (2) reduces the tax on total income by tax deducted and collected at source, the reliefs under sections 157, 159(1), 159(2) and 160 and the section 206 credits before the shortfall is measured, and if a later reassessment under section 279 raises the tax, sub-section (5) charges 1% again on the increase.
You meet it as a line in the demand: the interest is worked out in the intimation determining total income under section 270(1) or in the regular assessment order, and recomputed in a reassessment or recomputation order under section 279. Sub-section (6) adjusts it again after an appellate or rectification order, an increase coming as a notice of demand deemed to be under section 289.
the advance tax paid by such assessee under the provisions of section 406 or 407 is less than 90% of the assessed tax
| 1961 provision | What changed in the move |
|---|---|
| s.234B | 1. Sub-section (2A) of s.234B, the whole Settlement Commission code - interest on the additional income-tax in a s.245C application, on an increase under a s.245D(4) order, and adjustment under s.245D(6B) - has no successor in s.424. 2. S.234B(5), which confined the section to assessment years from 1 April 1989, is dropped as spent. 3. The reassessment increase is expressed as an algebraic formula, A = B minus C, rather than as prose; the arithmetic is the same. 4. The cross-references in s.234B(3) to s.153A (search assessments) go, reassessment now being s.279 alone, with block assessment dealt with separately in ss.292 to 301. 5. Explanation 3 excluded additional income-tax under 'section 140B or section 143'; s.424(3)(b) and (c) exclude only the additional income-tax under s.267. 6. The rate, the 90% test, the start date of 1 April following the year, and the month-or-part-of-a-month rule are all unchanged. 7. A defect carries over into the new numbering: s.424(6) speaks of 'the amount on which interest was payable under sub-section (1) or (3)', which in s.234B(4) correctly pointed to the reassessment charge in s.234B(3). In s.424 the reassessment charge is in sub-section (5) and sub-section (3) is an interpretation provision, so the reference reads as a carry-over from the old numbering. |
How we established this. Read s.424 of the 2025 Act against s.234B of the 1961 Act. The marginal headings are identical, 'Interest for defaults in payment of advance tax'. The charging sentence is the same sentence: 1961 - 'Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment'; 2025 s.424(1) is that sentence broken into clauses, with s.404 for s.208, ss.406 and 407 for s.210, s.270(1) for s.143(1) and 'tax year' for 'financial year'. Explanation 1 to s.234B, defining 'assessed tax' by reference to TDS and TCS under Chapter xvii, relief under ss.89, 90, 90A and 91 and tax credit under s.115JAA or s.115JD, becomes s.424(2) with Chapter xix-B, ss.157, 159(1), 159(2), 160 and s.206(2)(e) to (h) and 206(3) and (4) substituted in the same order. Explanation 2 (a first-time assessment under s.147 is a regular assessment) becomes s.424(3)(a) with s.279 substituted. Explanation 3 becomes s.424(3)(b) and (c). S.234B(2) becomes s.424(4) in the same two limbs. S.234B(3), the reassessment increase, becomes s.424(5). S.234B(4), the increase or reduction consequent on a later order with the notice-of-demand and refund consequences, becomes s.424(6).
See the circulars index.
See the notifications index.