Section 425 · Collection & recovery
Section 425 of the Income-tax Act, 2025 — Interest for Deferment of Advance Tax (Successor to Section 234C)
By CA Rajat Agrawal
Updated 05 Jul 2026
Chapter XIX
📜 What the law says — Section 425, Income-tax Act 2025
425. (1) Where in any tax year, an assessee, liable to pay advance tax under
section 404, other than the assessee mentioned in sub-section (3), has failed
to pay such tax, or the advance tax paid by the assessee on its current income on or
before the date specified in column B of the Table below, is less than advance tax
due on returned income, as specified in column C, then the assessee shall be liable
to pay interest on the amount of shortfall of advance tax as specified in column D,
at the rate of interest specified in column E:—
TABLE
Sl. Due date of Advance tax due on Amount of Shortfall Interest
No. Instalment returned income of advance tax being payable on
advance tax due as per shortfall as
column C, as reduced specified in
by advance tax already column D
paid on or before the date
specified in column B
A B C D E
1. 15th day of 15% of the tax due on Shortfall till 15th 3%
June returned income. day of June
2. 15th day of 45% of the tax due on Shortfall till 15th 3%
September. returned income. day of September
3. 15th day of 75% of the tax due on Shortfall till 15th 3%
December. returned income. day of December
4. 15th day of 100% of the tax due Shortfall till 15th 1%.
March. on returned income. day of March
(2) The assessee shall not be liable to pay any interest under sub-section (1), if the
advance tax paid by the assessee on the current income,—
(a) on or before the 15th day of June is 12% or more of the tax due on the
returned income;
(b) on or before the 15th day of September is 36% or more of the tax due
on the returned income.
(3) An assessee who declares profits and gains as per section 58(2) (Table: Sl. No. 1
or 3) or, who is liable to pay advance tax under section 404, has failed to pay such
tax, or the advance tax paid by the assessee on its current income on or before the
15th day of March is less than the tax due on returned income, s
In plain language
What Section 425 actually deals with
Section 425 of the Income-tax Act, 2025 charges interest for deferment of advance tax — that is, interest you must pay when you do not pay your advance-tax instalments on time or in full, even if you eventually clear the whole liability by year-end. It is the direct successor to Section 234C of the Income-tax Act, 1961, and it works in almost the same way. The idea is simple: the government wants tax collected steadily through the year in four instalments, so if you defer (delay) an instalment, you pay a small interest charge for that delay.
- Purpose: to penalise late or short payment of a particular instalment, not the yearly total.
- Rate: 1% per month (simple interest). Because a shortfall in the first three instalments runs for three months until the next due date, the effective charge is 3% each; the final (March) instalment runs for one month, so it is 1%.
- Base: interest is computed on the shortfall in each instalment, worked out on the tax due on your returned income.
Who it applies to
- Any assessee liable to pay advance tax — where estimated tax payable for the year (after TDS/TCS) is ₹10,000 or more.
- Salaried people are usually covered by TDS, but Section 425 bites where you have other income (interest, capital gains, rent, freelance, business).
- Not applicable to a resident senior citizen (aged 60+) who has no income from business or profession — they are exempt from advance tax and therefore from this interest.
The four instalments and the tolerance rule
For ordinary taxpayers, advance tax must reach the following cumulative levels:
- 15% by 15 June, 45% by 15 September, 75% by 15 December, 100% by 15 March.
- Built-in tolerance: no interest is charged for the first instalment if you have paid at least 12% by 15 June, and none for the second if you have paid at least 36% by 15 September. This small cushion protects honest estimates.
- There is no tolerance for the third (75%) and fourth (100%) instalments — you must hit those exactly.
Presumptive taxpayers
Taxpayers declaring income on a presumptive basis (the schemes carried into the 2025 Act, referenced via section 58(2) — successors to the old 44AD/44ADA) do not follow the four-instalment schedule. They pay the entire advance tax in one shot by 15 March. If they miss it, Section 425 interest of 1% applies on the shortfall.
Important relief — no interest for genuinely unforeseeable income
Section 425 recognises that some income simply cannot be estimated in advance. No interest is charged on the shortfall in earlier instalments if it arose because of:
- Capital gains;
- Winnings from lotteries, crossword puzzles, races, gambling, etc.;
- Dividend income; or
- Income from a business or profession that arose for the first time during the year.
Condition: you must pay the full tax on such income in the remaining instalments falling due after the income arose, or by 31 March of the year. Miss that, and the relief is lost.
How it interacts with related sections
- Section 423 (successor to 234A) — interest for late filing of the return.
- Section 424 (successor to 234B) — interest for default/short payment of advance tax measured against 90% of the year's total. Section 425 (instalment timing) and 424 (overall shortfall) can both apply in the same year.
- Section 425 interest is not deductible and does not reduce your tax liability — it is a pure cost of delay.
Practical implications
- Estimate income realistically each quarter and top up before each due date.
- If you sell property or shares late in the year, pay the tax on that gain in the very next instalment to keep the relief.
- Even a one-day delay past a due date counts a full month, because interest is charged per month or part of a month.
💡 Example
Worked example 1 — ordinary taxpayer. Suppose Ravi's total advance-tax liability for the year is ₹2,00,000 and he has no TDS. By 15 June he should have paid 15% = ₹30,000 but paid nothing. Since he did not even cross the 12% tolerance (₹24,000), interest applies on the full ₹30,000 shortfall: 1% × 3 months = 3% = ₹900. If the same happens at the September (₹90,000 shortfall) and December (₹1,50,000 shortfall) stages, add 3% × ₹90,000 = ₹2,700 and 3% × ₹1,50,000 = ₹4,500. If he still pays nothing by 15 March, interest on the ₹2,00,000 shortfall is 1% × 1 month = ₹2,000. Total Section 425 interest ≈ ₹10,100 (in addition to Section 424 interest that would also arise).
Worked example 2 — the tolerance saves you. Meera owes ₹1,00,000 for the year. By 15 June she pays ₹13,000 (13%). Although the target is 15% (₹15,000), she has crossed the 12% tolerance (₹12,000), so no interest is charged on the first instalment. This is why the 12%/36% cushions matter for people whose income is a little lumpy.
A relatable story. Anjali, a graphic designer, had a quiet first half of the year and estimated modest income. In February a client paid her a surprise ₹8 lakh bonus and she also sold some shares at a gain. She worried about a big interest bill. Because the capital-gains and newly-arising income relief applies, she simply paid the full tax on that late income in the March instalment — and Section 425 charged her no interest on the earlier instalments for that unforeseeable income. Had she delayed even that March payment, she would have lost the shelter.
| Instalment due date | Cumulative advance tax required | Tolerance (no interest if paid) | Interest period | Effective interest on shortfall |
|---|
| 15 June | 15% | 12% or more | 3 months | 3% (1% × 3) |
| 15 September | 45% | 36% or more | 3 months | 3% (1% × 3) |
| 15 December | 75% | No tolerance | 3 months | 3% (1% × 3) |
| 15 March | 100% | No tolerance | 1 month | 1% (1% × 1) |
| Presumptive taxpayers (u/s 58(2)) | 100% by 15 March | — | 1 month | 1% on shortfall |
Related sections
Section 424 — Interest for default in payment of advance tax (successor to 234B) Section 423 — Interest for defaults in furnishing return of income (successor to 234A) Section 404 — Liability to pay advance tax Section 58 — Presumptive taxation of business and profession income Section 407 — Instalments and due dates of advance tax Section 393 — Deduction of tax at source (TDS)
Frequently asked questions
What is Section 425 of the Income-tax Act, 2025?
It charges interest for deferment (delay or shortfall) of advance-tax instalments at 1% per month. It is the successor to Section 234C of the 1961 Act and applies to each instalment separately, not just the yearly total.
How much interest does Section 425 charge?
Simple interest at 1% per month or part of a month. A shortfall in the first three instalments runs for three months (effectively 3% each), and the final March instalment runs for one month (1%).
What are the tolerance limits that save me from interest?
No interest applies to the first instalment if you have paid at least 12% by 15 June, and none to the second if you have paid at least 36% by 15 September. There is no tolerance for the December and March instalments.
I earned a big capital gain late in the year. Will I pay interest under Section 425?
No, provided you pay the full tax on that capital gain in the remaining instalments after the gain arose, or by 31 March. The same relief covers lottery winnings, dividend income and first-time business income.
Do presumptive taxpayers have to pay in four instalments?
No. Taxpayers under the presumptive scheme (referenced via section 58(2)) pay the entire advance tax by 15 March in a single payment; interest of 1% applies only if they fall short of that.
Is Section 425 interest the same as Section 424 interest?
No. Section 425 (like old 234C) is for missing individual instalment deadlines during the year. Section 424 (like old 234B) is for overall short payment against 90% of the year's tax. Both can apply together.
Can I claim Section 425 interest as a deduction?
No. Interest for deferment of advance tax is not deductible and does not reduce your tax liability — it is purely an extra cost of paying late.
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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