Section 424 of the Income Tax Act 2025

Section 424 of the Income Tax Act 2025 , deals with the penal interest payable on short payment of advance tax in India. This penalty is imposed when the assessee who is liable to pay advance tax under Section 404 has failed to pay such tax, or the advance tax paid by them under Section 406 or 407 is less than 90% of the assessed tax in a particular tax year.

In these cases, the assessee is liable to pay simple interest at 1% per month for the period from 1st April up to the date of determination of total income under Section 270(1) and up to the date of completion of regular assessment (in case a regular assessment is made).

Interest under Section 424 is charged at 1% per month if the advance tax paid by the end of the tax year is less than 90% of total tax liability. Check out the key features of Section 424 in the table below:

The key difference between Section 424 of the Income Tax Act, 2025 and Section 234B of the Income Tax Act, 1961, is the structural reorganisation and renumbering of the provisions in the new act. Moreover, the new section has removed the settlement commission provisions present in the older section.

Section 234B provides references to older sections, such as Sections 90, 90A, 91, 115JAA, etc. On the other hand, Section 424 adds references to new sections, such as Section 157, 159, 160, 206, etc.

The core purpose of the section remains the same. It lays out the various terms and conditions when a taxpayer has to pay penal interest on advance tax dues. The act also specifies the penal interest rate of 1% per month. This is applicable on non-payment of advance tax or failure to pay at least 90% of the assessed tax by the due date. :

The Government of India has introduced Section 424 of the Income Tax Act, 2025, with the primary objective of enhancing the timely payment of advance tax and preventing tax delays. Additionally, the new section ensures timely compensation to the government for delayed tax payments, ensuring better tax compliance.

Section 424 of the Income Tax Act, 2025 mentions specific conditions when the assessee has to pay penal interest at 1% per month on advance tax dues. Below are some key scenarios that you need to consider:

Section 424 of the Income Tax Act, 2025, mandates the assessee to pay a simple interest of 1% per month or part of a month if they fail to pay the advance tax or pay it less than 90% of the total assessed tax liability.

The assessee is liable to pay simple interest at 1% per month for the period from 1st April up to the date of determination of total income under Section 270(1), or up to the date of completion of regular assessment.

Simple interest under Section 424 of the Income Tax Act, 2025, is easily calculated through a formula. However, before calculation, it is essential to know the amount on which interest is charged.

Penal interest under Section 424 is calculated using the below formula:

Penal Interest Payable = 1% × Number of Months × Shortfall in Tax

Where, Number of Months = Delay in payment calculated from due date in months Shortfall in Tax = Difference between advance tax payable and actual advance tax paid by the due date

To help you understand how penal interest is calculated, below is an example of how it works as per Section 424 of the Income Tax Act, 2025:

• Total Tax Liability in a tax year = ₹1 lakh
• Advance Tax Paid during the tax year = ₹60,000
• Shortfall in Advance Tax Paid by due date= ₹40,000
• Delay prior to complete payment of tax dues = 5 months

Then,

Penal Interest payable u/s 424 of Income Tax Act, 2025 = ₹40,000 × 1% × 5 = ₹2,000. So, total advance tax dues payable plus interest = ₹42,000.

Interest under Section 424 of the Income Tax Act, 2025, may be adjusted when the taxpayer makes additional tax payments after the due date but before the completion of assessment. Through these adjustments it is ensured that interest is charged only on the actual tax amount outstanding for the applicable period of delay.

Section 424 is a restructured version of Section 234B with a primary focus on restructuring and renumbering the provisions. It has no major change in tax impact.

Check out the key differences between Section 424 and Section 234B:

Taxpayers can avoid interest payments under Section 424 in 2026 through accurate tax planning along with timely payments throughout the tax year. Effective tax compliance saves time and prevents last-minute stress. Check out the ways to avoid interest under Section 424:

An assessee who is liable to pay advance tax has to pay interest under Section 424 if they fail to pay the advance tax within the due date. Or if they pay advance tax that is less than 90% of the total tax liability calculated for the tax year.

Assessee with a tax liability lower than ₹10,000 within a tax year are not liable to pay advance tax in India. Apart from this, the following categories of individual taxpayers are also exempt from advance tax payment:

• Senior citizens (individuals aged above 60 years) who do not have any professional or business income
• Salaried employees whose tax liabilities are fully covered under TDS and do not have any other income source

Interest under Section 424 of the Income Tax Act, 2025, is paid along with self-assessment tax. Moreover, the interest is automatically calculated when filing the Income Tax Return.

Section 424 of the Income Tax Act, 2025, is an updated version of Section 234B of the Income Tax Act, 1961. The major change is structural, rather than functional. Thus, the tax impact of both sections remains the same, but the interpretation and compliance have become easier through the new section.