Section 424 & 425, Income-tax Act 2025: Interest for defaults and deferment of advance tax

What were Sections 234B and 234C, and where did they go?

Two provisions with one job: making you pay tax through the year rather than all at the end. The Income-tax Act 2025 carries both forward without changing a rupee and only renumbers them. Section 234C of the 1961 Act becomes Section 425, titled "Interest for deferment of advance tax". Section 234B becomes Section 424, titled "Interest for defaults in payment of advance tax". The old numbers are the ones every accountant still says out loud, so this page keeps both in view.

The split between them is about timing. Section 425 (the old 234C) works inside the tax year: it checks each of the four instalment dates and charges interest when you fall behind that date's target. Section 424 (the old 234B) works after the tax year: it looks at where you stood on 31 March and charges interest from 1 April until you finally pay. A taxpayer who drifts all year usually meets both, first the deferment interest date by date, then the shortfall interest running past year-end.

The 2025-Act numbers (424 and 425) and their titles are cross-checked against multiple published copies of the enacted Act.†

Section 425 (old 234C): interest for deferring an instalment

Section 425 charges 1% a month whenever you pay an instalment short of its cumulative target. Advance tax is not one bill at year-end; it is due in four parts, and each part is a running total of the year's estimated tax, not a fresh slice on top of the last.

By 15 June you should have paid 15% of the year's tax; by 15 September 45%; by 15 December 75%; and by 15 March the full 100%. Cumulative is the word that matters: the 45% due in September is the total you should have paid by then, so ₹45,000 on a ₹1,00,000 liability, not ₹45,000 added to June.

Fall short at a date and the shortfall carries simple interest at 1% a month. The count is three months for each of the first three instalments (the gap to the next date) and one month for the 15 March instalment, because the year ends soon after. So a shortfall at the June, September or December dates costs 3% of the shortfall, and a March shortfall costs 1%.

The shortfall is measured against the full target (15%, 45%, 75%, 100%), not against the 12% or 36% band. The band only decides whether interest applies at all, so paying 12% by June avoids the June charge but the December shortfall is still worked against 75%.

The safe harbours and carve-outs that switch Section 425 off

Section 425 looks harsh, but three reliefs keep honest taxpayers out of its way:

• The 12% and 36% cushion. For the first two dates only, there is no interest if you had paid at least 12% by 15 June or 36% by 15 September, a little below the 15% and 45% targets. It exists because estimating income early in the year is hard; the December and March dates have no such band.
• The presumptive one-shot. A taxpayer on the presumptive scheme (Section 58 of the 2025 Act, the old 44AD and 44ADA) skips the first three instalments entirely and pays the whole 100% by 15 March. Only a shortfall at that single date can draw interest, and then for just one month.
• The unpredictable-income carve-out. Where a shortfall is caused by a capital gain, a windfall such as lottery or betting winnings, income from a business or profession earned for the first time, or dividend income, no interest is charged for the instalments that fell before the income arose, provided you pay the tax on it in the remaining instalments (or, if none remain, by 31 March). The law does not expect you to predict a sale or a jackpot.

The carve-out only holds if you pay on time from the next date onward. Miss the first instalment that falls due after the gain arises, and the interest applies as normal.

Section 424 (old 234B): interest for underpaying the year

Section 424 asks one question on 31 March: did your advance tax add up to at least 90% of your assessed tax? If it did, there is no charge, however uneven your instalments were. If it fell short of 90%, 1% a month runs on the shortfall from 1 April of the following year until the day you pay, whether that is when you file or later when the department assesses you.

Assessed tax is your tax on total income for the year reduced by the TDS and TCS others collected for you, and by reliefs such as the arrears relief of Section 157 and foreign tax credits. It is the part you were meant to fund yourself through advance tax. The 90% test compares your advance tax against that figure.

The trap is what the interest is charged on. Once you are under 90%, the 1% a month applies to the entire gap between assessed tax and advance tax paid, not just the slice below 90%. Paying 89% instead of 90% does not cost interest on 1%; it costs interest on the whole 11% you still owed. Every part of a month counts as a full month, so filing on 2 May instead of 30 April adds a second month.

Self-assessment tax you pay when filing stops the Section 424 clock on the amount paid, so the sooner you clear the balance after year-end, the fewer months of interest you carry.

How the two charges stack, and the ₹100 rounding

Both can apply to the same year without overlapping. Section 425 covers the instalment dates inside the tax year and stops at 31 March; Section 424 picks up from 1 April and runs until you pay. So a taxpayer who paid nothing until the return is filed carries Section 425 for the deferment across the four dates, then Section 424 for holding the shortfall past year-end. They meter different periods, so there is no double charge on the same days.

Each charge is worked on its shortfall rounded down to the nearest ₹100: any odd rupees below ₹100 are dropped before the 1% is applied.† The tax figures already include the 4% health-and-education cess, so you do not add cess again on the interest. And neither charge is a penalty you can argue down: they are automatic, apply without any notice or hearing, and are not deductible against your income.

Who actually has to watch the advance-tax calendar?

The instalment calendar applies to anyone whose tax for the year, after the TDS others deduct for them, comes to ₹10,000 or more. In practice that catches:

• Freelancers, consultants and professionals whose clients do not deduct enough TDS to cover the bill.
• Landlords, and anyone with large bank interest, dividend income or capital gains on top of a salary.
• F&O and intraday traders, and business owners who are not on the presumptive scheme.
• Salaried people with a big second income the employer does not know about, unless they declare it and let payroll raise the TDS.

Resident senior citizens (60 or older) with no income from business or profession are exempt from advance tax altogether, so neither Section 424 nor Section 425 can apply to them. Salaried people whose employer TDS covers the whole liability are also clear, because TDS counts as tax paid on time.

How to work out the interest, step by step

For any year, run the two meters in order:

• Pin down your total tax for the year (including the 4% cess) and subtract the TDS and TCS others collected. What is left is your advance-tax liability, the figure the whole schedule works on.
• For Section 425, take each date in turn. Compare what you had paid by then with 15%, 45%, 75% and 100% of the liability. For any date you fell short (and, for June and September, paid below the 12% or 36% band), multiply the shortfall by 1% and by three months (one month for the 15 March date).
• For Section 424, check where you stood on 31 March. If your advance tax was under 90% of your assessed tax, take the full gap between assessed tax and advance tax paid, and charge 1% a month from 1 April until the balance is cleared, counting any part-month as a whole month.
• Round each shortfall down to the nearest ₹100 before applying the 1%.† Add the Section 425 pieces and the Section 424 figure together for the total interest.

The advance tax calculator linked below runs the 15/45/75/100% schedule and estimates the Section 425 interest for your own figures, so you can see what each missed date costs before it locks in.

What to actually do about advance-tax interest

The single most valuable move is the 15 March top-up. If cash flow kept you off the earlier dates, paying enough to reach 100% of your assessed tax by 15 March caps your exposure at Section 425 alone and switches Section 424 off completely, because clearing 90% by year-end is exactly what stops the year-end charge. On a ₹1,00,000 liability paid only on 15 March, that is about ₹4,050 of Section 425 interest and nothing under Section 424, instead of both.

If a full instalment is a stretch, aim for the cushion rather than the target. Paying 12% by 15 June and 36% by 15 September, instead of the strict 15% and 45%, costs nothing on those two dates. On a ₹1,00,000 liability that is ₹12,000 and ₹36,000 rather than ₹15,000 and ₹45,000, a genuine cash-flow saving with no interest cost.

Salaried filers with side income have a zero-effort fix: declare the extra income to the employer so payroll raises your TDS. Because TDS is treated as paid on time whenever in the year it is actually deducted, it sidesteps both meters without a single instalment date to watch.

Finally, size the cost honestly. 1% a month is 12% a year of simple interest, and it is not tax-deductible. If your idle cash earns less than that, or a loan would cost more, paying advance tax on time is one of the safest 12% returns you will find. But do not wildly over-pay to be safe: excess advance tax comes back only as a refund, and the refund interest rate is lower than the 12% you gave up.

Worked examples

Section 424 & 425 FAQs