Section 423 · Collection & recovery
Section 423 of the Income-tax Act, 2025 — Interest for Defaults in Furnishing Return of Income (Successor to Section 234A)
By CA Rajat Agrawal
Updated 05 Jul 2026
Chapter XIX
📜 What the law says — Section 423, Income-tax Act 2025
423. (1) Where the return of income for any tax year is furnished after the due
date or is not furnished, the assessee shall be liable to pay simple interest
as per the following formula:—
I= 1% × A × T
where,—
I = the interest payable;
A = the amount of tax on which interest is payable, as specified in
sub-section (2);
T = 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).
(2) For sub-section (1), in respect of the circumstances specified in column B of the
Table below, the starting date shall be the date specified in column C, the ending
date shall be the date as specified in column D and the amount of tax on which
interest is payable is specified in column E:
TABLE
Sl. Circumstances Starting date Ending date The amount of tax
No. on which interest is
payable
A B C D E
1. Where the return is Due date for Date of fur- (a) Where a regu-
furnished under sec- furnishing the nishing of the lar assessment
tion 263(1), (4) or (6) return of income return. is not made,
or in response to a under section tax on the total
notice under section 263(1). income as de-
268(1) after the due termined under
date. section 270(1)as
reduced by tax
paid;
(b) Where a regular
assessment is
made, tax on the
total income de-
termined under
In plain language
What Section 423 is about
Section 423 of the Income-tax Act, 2025 charges simple interest for filing your income tax return late — or not filing it at all. It is the direct successor to the well-known Section 234A of the Income-tax Act, 1961, and it applies from 1 April 2026 (assessment year 2026-27 onwards). The idea is simple: if you owe tax and you miss the due date for filing your return, the Government has been kept out of its money, so you pay interest for that delay.
The interest is computed with a clean statutory formula: I = 1% × A × T, where I is the interest, A is the amount of tax on which interest is payable, and T is the number of months (or part of a month) of delay. In plain terms, this is 1% per month or part of a month — the same rate that existed under the old Section 234A.
Who does it apply to?
- Every taxpayer — individuals, HUFs, firms, LLPs, companies, trusts — who is required to file a return of income and files it after the due date, or does not file it at all.
- Only those with unpaid tax. Interest bites on the net tax that is still outstanding after the due date. If your entire liability is already covered by TDS, TCS, advance tax and self-assessment tax paid on or before the due date, there is effectively no interest under Section 423, even if the return itself is late.
The period of interest (when the clock runs)
Interest starts the day immediately after the due date of filing the return and runs until:
- the date you actually file the return, if you file late; or
- the date of completion of assessment, if you never file a return and the department assesses you (best-judgment / regular assessment).
Any part of a month is treated as a full month, in line with the rounding rule that carried over from Rule 119A of the old regime. So a delay of "3 months and 2 days" is charged as 4 months.
How the "tax on which interest is payable" (A) is worked out
You do not pay interest on your gross tax. The base amount A is your total tax liability reduced by:
- Advance tax already paid;
- TDS and TCS credited to you;
- Reliefs (such as double-taxation and specified reliefs) and eligible tax credits (e.g. AMT/MAT credit) under the relevant provisions of the 2025 Act.
Crucially, self-assessment tax paid on or before the due date is honoured and reduces the base, so genuine early-payers are not penalised merely for late paperwork.
How it interacts with other interest and reassessment
- Section 424 (successor to 234B) and Section 425 (successor to 234C) deal with default and deferment of advance tax. Section 423 is a separate, additional charge for the filing delay and can apply alongside them.
- Reassessment / notice cases: where a return is required in response to a reassessment notice, interest under Section 423 attaches to the additional tax arising from that reassessment, over its own start-to-end period.
- Appeal outcomes: if a later appellate or revision order changes your tax, the interest is re-computed proportionately — a fresh demand is raised if it goes up, and excess interest is refunded if it goes down.
Practical implications
- Pay before the due date, file later if you must. To kill Section 423 interest, clear the self-assessment tax on or before the due date — the interest is tied to unpaid tax, not to the act of filing.
- Section 423 is interest, not a penalty. The separate late-filing fee (the successor to the old Section 234F ₹1,000/₹5,000 fee) is charged independently, and so are late fees for belated returns. Interest is not deductible while computing your income.
- It is automatic and non-discretionary. The Assessing Officer has no power to waive it; it is calculated by the system when you file.
💡 Example
Worked example 1 — late filing with tax due. Rohan, a salaried consultant, has a total tax liability of ₹1,00,000 for FY 2025-26. TDS of ₹70,000 was deducted, and he had not paid any advance tax or self-assessment tax by the due date of 31 July 2026. His net unpaid tax (A) is ₹1,00,000 − ₹70,000 = ₹30,000. He files on 18 November 2026 — a delay of 3 months and 18 days, rounded up to 4 months. Interest = 1% × ₹30,000 × 4 = ₹1,200.
Worked example 2 — no interest despite late return. Meera also had a ₹30,000 balance after TDS, but she paid it as self-assessment tax on 29 July 2026, before the 31 July due date, and only filed her return on 20 September 2026. Because the tax was fully paid before the due date, the base amount A is nil, so her Section 423 interest is ₹0 — though a separate late-filing fee may still apply.
A relatable story. Two friends, Arjun and Kavya, both procrastinate on filing. Arjun assumes "I'll deal with the tax when I file" and clears ₹40,000 only in October along with his return — he ends up paying 1% a month interest on that ₹40,000 for every month of delay. Kavya, nervous about deadlines, transfers her ₹40,000 self-assessment tax on 30 July even though she files her actual return in October. When the interest column loads, Kavya's Section 423 interest is zero. Same delay in filing, very different bills — because Section 423 punishes unpaid tax, not late paperwork.
| Aspect | Section 423 (Income-tax Act, 2025) | Section 234A (Income-tax Act, 1961) |
|---|
| Interest rate | 1% per month or part of a month (formula I = 1% × A × T) | 1% per month or part of a month |
| Trigger | Return filed after due date, or not filed at all, with tax outstanding | Return filed after due date, or not filed, with tax outstanding |
| Base amount (A) | Tax liability minus advance tax, TDS/TCS, reliefs and eligible credits | Tax liability minus advance tax, TDS/TCS and reliefs |
| Period start | Day after the due date of filing | Day after the due date of filing |
| Period end | Date return is filed, or date of completion of assessment if not filed | Date of filing, or date of assessment |
| Self-assessment tax paid before due date | Reduces base — no interest on that amount | Reduces base — no interest on that amount |
| Part of a month | Rounded up to a full month | Rounded up to a full month |
| Effective from | 1 April 2026 (AY 2026-27) | Up to AY 2025-26 |
| Structure | Tabulated, scenario-wise (late filing, non-filing, reassessment notice) | Single general provision |
Related sections
Section 424 — Interest for default in payment of advance tax (successor to 234B) Section 425 — Interest for deferment of advance tax (successor to 234C) Section 426 — Interest on excess refund granted to the assessee Section 263 — Due date and manner of furnishing return of income Section 280 — Notice requiring return / reassessment proceedings Section 266 — Interest on refunds due to the assessee
Frequently asked questions
Is interest under Section 423 the same 1% per month as the old Section 234A?
Yes. Section 423 keeps the rate at 1% per month or part of a month, now expressed through the formula I = 1% × A × T. The core mechanics are carried over from Section 234A of the 1961 Act.
I paid all my tax before the due date but filed my return late. Do I still owe Section 423 interest?
No. Section 423 interest applies only to tax that remains unpaid after the due date. If your self-assessment tax, TDS and advance tax fully cover your liability by the due date, the base amount is nil and no interest arises. A separate late-filing fee may still apply.
How is a part of a month treated?
Any part of a month counts as a full month. So a delay of 3 months and 5 days is charged as 4 months of interest.
Is Section 423 interest a penalty, and can it be waived?
It is compensatory interest, not a penalty, and it is charged automatically. The Assessing Officer cannot waive it, and it is not allowed as a deduction from your income.
Does Section 423 apply if I never file my return at all?
Yes. If you fail to file, interest runs from the day after the due date until the date the assessment is completed by the department, on the tax finally determined as payable.
Can Section 423 interest apply along with Sections 424 and 425?
Yes. Section 423 covers the filing delay, while Sections 424 and 425 cover advance-tax default and deferment. They are independent, so more than one can apply to the same year.
What happens to the interest if my tax changes after an appeal?
The interest is re-computed on the revised tax. If the tax rises, a fresh demand for extra interest is issued; if it falls, the excess interest already paid is refunded.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 05 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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