Section 424 · Collection & recovery
Section 424 of the Income-tax Act, 2025 — Interest for Default in Payment of Advance Tax
By CA Rajat Agrawal
Updated 05 Jul 2026
Chapter XIX
📜 What the law says — Section 424, Income-tax Act 2025
424. (1) Subject to the other provisions of this section, where, in any tax year, an
assessee who is liable to pay advance tax under section 404,—
(a) has failed to pay such tax; or
(b) the advance tax paid by such assessee under the provisions of section
406 or 407 is less than 90% of the assessed tax,
the assessee shall be liable to pay 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—
(i) upto the date of determination of total income under section 270(1); and
(ii) upto the date of completion of regular assessment, where a regular
assessment is made,
on an amount equal to the assessed tax in case where clause (a) is applicable or, on
the amount by which the advance tax paid as aforesaid falls short of the assessed
tax in case where clause (b) is applicable.
(2) In sub-section (1), “assessed tax”means 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 such regular assessment as reduced by the amount of,—
(a) any tax deducted or collected at source as per Chapter XIX-B on any
income which is subject to such deduction or collection and which is
taken into account in computing such 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 referred to in that section;
(e) any deduction, from the Indian income-tax payable, allowed under section
160, on account of tax paid in a country outside India; and
1
[(f) any tax credit allowed to be set off as per section 206(2)(e) to (h) and 206(3)
and (4).]
(3) For the purposes of this section,—
(a) where in relation to a tax year, an assessment is made for the first time
under section 279, the assessment so made shall be regarded as a regular
assessment;
1. Substituted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to its substitution, clause (f) read
as under :
“(f) any tax credit allowed to be set off as per section 206(1)(m) to (p) and 206(2)(e) to
(h).”
In plain language
What Section 424 actually says
Section 424 of the Income-tax Act, 2025 is the direct successor to the old Section 234B of the Income-tax Act, 1961. It charges simple interest at 1% for every month or part of a month when a taxpayer who was liable to pay advance tax either (a) fails to pay it at all, or (b) pays less than 90% of the "assessed tax". The new Act simply re-numbers and re-drafts the old rule in plainer language; the core mechanics are unchanged and the rate stays at 1% per month.
Who it applies to
- Anyone liable to pay advance tax — i.e. whose total tax for the year (after TDS/TCS and reliefs) is ₹10,000 or more.
- Salaried people are usually shielded because their employer deducts TDS, but they are caught if they have large extra income (capital gains, interest, rent, dividends, freelance income) on which enough tax was not deducted.
- Business owners, professionals, presumptive-scheme taxpayers, and investors are the most commonly affected.
- Resident senior citizens (60+) with no business or professional income are exempt from advance tax, so Section 424 does not touch them.
How "assessed tax" is defined
This is the figure the 90% test is measured against. Under Section 424, assessed tax means the tax determined on your income (on processing under section 270(1) or on regular assessment), reduced by:
- TDS and TCS credited under Chapter XIX-B;
- Relief under section 157 (double-taxation / rebate reliefs);
- Foreign tax relief under section 159(1) and 159(2);
- Tax deduction under section 160; and
- Tax credit set-off under section 206(13) (the AMT/MAT-style credit).
Important: assessed tax excludes the additional income-tax payable under section 267. In short, interest is charged on the net tax you should have paid yourself, not the gross bill.
How the interest is calculated
- Rate: 1% per month (simple interest), each part of a month counted as a full month.
- Amount: charged on the shortfall — assessed tax minus advance tax actually paid — rounded down to the nearest ₹100.
- Period: from 1 April following the tax year up to the date of determination under section 270(1) or the date of regular assessment.
- Self-assessment tax paid before assessment reduces the base on which interest keeps running, so paying early stops the meter.
How it interacts with related sections
- Section 423 (old 234A): interest for filing the return late — a separate charge that can apply on top of 424.
- Section 425 (old 234C): interest for deferment of individual advance-tax instalments during the year. 425 penalises missing the quarterly milestones; 424 penalises the year-end shortfall. Both can apply together.
- Sections 404, 406, 407: govern the advance-tax liability and the instalment payments that 424 measures against.
Practical implications
- Estimate your income conservatively; the most common trigger is over-estimating expected TDS credit and under-paying advance tax.
- If you realise a large capital gain or bonus late in the year, top up advance tax before 31 March to keep the shortfall small.
- Transition note: the CBDT has clarified that where the default arose for FY 2025-26 (AY 2026-27) or earlier, the consequential interest is still governed by the old sections 234B/234C of the 1961 Act, because both the obligation and the default arose before the 2025 Act commenced on 1 April 2026. Section 424 governs defaults from the 2025 Act's operation onwards.
💡 Example
Worked example 1 — straightforward shortfall. Priya, a freelance designer, has total tax of ₹1,50,000 for the year. Her clients deducted ₹30,000 as TDS, so her assessed tax is ₹1,20,000. She was required to pay at least 90% of this (₹1,08,000) as advance tax but paid only ₹40,000. Shortfall = ₹1,20,000 − ₹40,000 = ₹80,000. She files and the return is processed on 20 July (4 months from 1 April). Interest under Section 424 = ₹80,000 × 1% × 4 = ₹3,200.
Worked example 2 — the 90% escape. Rahul has assessed tax of ₹2,00,000. He paid ₹1,85,000 in advance tax. Since ₹1,85,000 is more than 90% of ₹2,00,000 (₹1,80,000), no Section 424 interest is charged at all, even though a small balance remains. Crossing the 90% line is what matters. (Note: he could still owe Section 425 interest if he missed the quarterly instalment milestones.)
A relatable story. Meena, a schoolteacher, sold ancestral shares in February and made a ₹6 lakh capital gain. She assumed "tax season is in July, I'll pay then." She did not top up her advance tax by 15 March. When she filed in July, the department processed her return and added Section 424 interest at 1% per month on the tax shortfall from April onwards — a few thousand rupees she could have avoided by paying a single advance-tax challan before 31 March. Her lesson: advance tax is due during the year you earn, not the year you file.
| Feature | Section 424 (Act, 2025) | Section 234B (Act, 1961) |
|---|
| What it charges | Interest for default in payment of advance tax | Same |
| Interest rate | 1% per month or part of month (simple) | 1% per month or part of month (simple) |
| Trigger | No advance tax paid, OR paid < 90% of assessed tax | Same |
| Liability gateway | Total tax ₹10,000 or more after TDS/TCS | Same |
| Base amount | Shortfall, rounded down to nearest ₹100 | Shortfall, rounded down to nearest ₹100 |
| Period | 1 April after tax year to date of s.270(1) / regular assessment | 1 April of AY to s.143(1) / regular assessment |
| Cross-references | Sections 157, 159, 160, 206, 267, 270, 404, 406, 407 | Sections 90, 90A, 91, 115JAA, 143, 234A/C |
| Settlement Commission clause | Removed | Present |
Related sections
Section 423 — Interest for default in furnishing return of income (old 234A) Section 425 — Interest for deferment of advance tax instalments (old 234C) Section 426 — Interest on excess refund (old 234D) Section 404 — Liability to pay advance tax Section 407 — Instalments and due dates of advance tax Section 270 — Assessment / determination of total income
Frequently asked questions
What is the interest rate under Section 424?
Simple interest at 1% for every month or part of a month on the advance-tax shortfall. Even a single day into a new month counts as a full month.
When am I liable for Section 424 interest?
When you were required to pay advance tax (total tax of ₹10,000 or more after TDS/TCS) and you either paid nothing or paid less than 90% of your assessed tax for the year.
How is the shortfall calculated?
Take your assessed tax (tax on income minus TDS/TCS and reliefs under sections 157, 159, 160 and 206), subtract the advance tax you actually paid, and round the result down to the nearest ₹100. Interest runs on that amount.
Is Section 424 the same as the old Section 234B?
Yes. Section 424 of the 2025 Act replaces Section 234B of the 1961 Act with the same 1% monthly rate and 90% test; it mainly updates the drafting and cross-references and drops the Settlement Commission provisions.
Can I be charged Section 424 and Section 425 interest together?
Yes. Section 425 (old 234C) penalises missing the quarterly instalment milestones during the year, while Section 424 penalises the year-end shortfall. Both can apply to the same taxpayer.
How do I avoid Section 424 interest?
Estimate your income realistically and ensure your advance tax plus TDS covers at least 90% of your final tax by 31 March. If you earn a late windfall like a capital gain, pay a top-up advance-tax challan before the year ends.
Which law applies for a shortfall relating to FY 2025-26?
The CBDT has clarified that defaults arising for AY 2026-27 or earlier remain governed by the old sections 234B/234C of the 1961 Act, because the default arose before the 2025 Act took effect on 1 April 2026. Section 424 applies to later years.
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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