Interest Under the Income-tax Act, 2025 (234A, 234B, 234C Equivalents)
Quick Answer
The Income-tax Act, 2025 carries forward the compensatory interest regime of the 1961 Act — 1 per cent per month for delayed filing (234A equivalent), 1 per cent per month for default in advance tax (234B equivalent), 1 per cent per month for deferment of advance-tax instalments (234C equivalent), 0.5 per cent per month for excess refund (234D equivalent), and Rs 200 per day late fee for TDS/TCS return delay (234E equivalent). For tax year 2026-27, the due dates are 31 July 2027 (non-audit), 31 October 2027 (audit) and 30 November 2027 (transfer pricing). Interest is simple, not compound, and a part of a month counts as a full month. Waiver is available under the 220(2A) equivalent only on genuine hardship.
Last Updated: 15 April 2026 | Applicable From: Tax Year 2026-27 (1 April 2026 onwards) | Reference: Income-tax Act, 2025 (30 of 2025), as amended by Finance Act, 2026
Interest is the silent multiplier in any income-tax dispute. Where a penalty or a prosecution requires a finding of under-reporting or wilful conduct, interest runs automatically — on the first day of default, for every subsequent month or part of a month, without any discretion in the hands of the Assessing Officer. Under the Income-tax Act, 2025, the interest provisions have been carried forward from the 1961 Act in substantially the same form. This guide explains each interest provision as it applies from tax year 2026-27, walks through worked computations, identifies interaction with self-assessment tax and updated returns, and sets out the narrow waiver route. If you have filed your return even one day late, if your advance-tax payments are short of the 90 per cent threshold, or if the Department has recomputed your liability in reassessment, you are almost certainly staring at interest under one or more of these provisions — and the numbers can be significant.
Definition — Compensatory interest under the 2025 Act: Interest charged on a taxpayer for failing to discharge a tax liability on time. It is compensatory in nature — compensating the Government for the time value of money it would otherwise have received. It is levied automatically during processing and assessment and is not discretionary at the Assessing Officer level.
Definition — Advance tax (2025 Act equivalent of section 208): Tax payable during the tax year itself in quarterly instalments where the estimated tax liability for the year (after TDS and TCS credit) exceeds Rs 10,000. Senior citizens aged 60 or above who do not have business or profession income are exempt.
Definition — Assessed tax: The tax on the total income as determined on regular assessment (or on processing under the 2025 Act equivalent of section 143(1)), reduced by TDS, TCS, relief under the DTAA, and any tax credit under the AMT/MAT provisions. The assessed tax is the base against which advance-tax shortfall is measured.
Definition — Shortfall in advance tax: Assessed tax minus advance tax paid during the tax year. This shortfall triggers interest under the 234B equivalent if it exceeds 10 per cent of the assessed tax (in other words, if advance tax paid is less than 90 per cent of assessed tax).
From 1 April 2026, all interest computations for the tax year 2026-27 are made under the Income-tax Act, 2025. The core provisions — delay in return filing, default in advance tax, deferment of instalments, excess refund, and TDS return delay — are carried forward from the 1961 Act at the same rates (1 per cent per month for 234A/234B/234C equivalents, 0.5 per cent per month for 234D equivalent, Rs 200 per day for 234E equivalent). The first due date under the 2025 Act is 31 July 2027 for individuals and non-audit taxpayers for tax year 2026-27, 31 October 2027 for audit cases, and 30 November 2027 for transfer-pricing cases. Part of a month continues to be treated as a full month — a return filed on 1 August 2027 attracts one full month of interest under the 234A equivalent even though the delay is one day. Advance-tax instalment dates remain unchanged at 15 June, 15 September, 15 December and 15 March. The 12 per cent cushion for the first two instalments of the 234C equivalent and the 90 per cent threshold for the 234B equivalent are also retained. Waiver of interest remains discretionary under the 220(2A) equivalent and is granted only on a cumulative finding of genuine hardship, cooperation and circumstances beyond control.
Table of Contents
- Why the 2025 Act charges compensatory interest
- Delay in filing return — the 234A equivalent
- Default in advance tax — the 234B equivalent
- Deferment of instalments — the 234C equivalent
- Excess refund — the 234D equivalent
- TDS return delay — the 234E equivalent
- Interaction with self-assessment tax
- Interaction with updated returns
- Waiver under the 220(2A) equivalent
- Worked examples for tax year 2026-27
- Expert Insight
- Key Takeaways
- Frequently Asked Questions
1. Why the 2025 Act charges compensatory interest
The Indian income-tax framework relies on voluntary compliance. Every taxpayer is required to estimate income, compute liability, pay advance tax in instalments, and file the return by the statutory due date. When any of these obligations is missed, the Government is deprived of revenue it is legally entitled to receive on specific dates. Interest is the mechanism that compensates for this deprivation. It is not a penalty — it does not require a finding of intent or wilful conduct; and it is not a fine — it is automatically computed by the return-processing system. The 2025 Act preserves the compensatory nature of interest: rates are neither punitive nor aligned to market interest rates, but designed to reflect the time value of the delayed tax.
The practical consequence for taxpayers is that interest accrues silently and cannot be contested on merits except in very narrow circumstances. A taxpayer who is genuinely disputing the quantum of tax in appeal will still see interest running on the disputed amount. If the taxpayer ultimately wins, the interest is reversed; if the taxpayer loses, the interest compounds the effective cost of losing. Planning around interest is therefore a necessary part of any tax-compliance workflow — not an afterthought.
2. Delay in filing return — the 234A equivalent
2.1 Trigger and period
Interest under the 2025 Act equivalent of section 234A is attracted when a return is not filed by the due date prescribed under the return-of-income chapter (Chapter XV). For tax year 2026-27, the due dates are:
- Individuals, HUFs and other non-audit cases: 31 July 2027
- Companies and persons subject to audit under the 2025 Act equivalent of section 44AB: 31 October 2027
- Partners of audit-required firms: 31 October 2027
- Taxpayers required to furnish the transfer pricing report (Form 3CEB equivalent): 30 November 2027
The interest period runs from the day immediately following the due date to the date the return is actually filed (including a belated return under the equivalent of section 139(4) and an updated return under the equivalent of section 139(8A)). If no return is filed at all, the period runs up to the date of completion of best-judgment assessment.
2.2 Rate and base
The rate is 1 per cent per month or part of a month. Part of a month is treated as a full month — a one-day delay attracts a full month’s interest. The base is:
Tax on the total income as per return or assessment, reduced by advance tax, TDS, TCS and any relief under the DTAA or AMT/MAT credit.
This is the shortfall of tax on the date the return ought to have been filed.
3. Default in advance tax — the 234B equivalent
3.1 Trigger
Interest under the 2025 Act equivalent of section 234B is attracted when the advance tax paid during the tax year is less than 90 per cent of the assessed tax. The 90 per cent threshold is a cushion — if the taxpayer pays at least 90 per cent of assessed tax as advance tax during the tax year, no 234B interest arises.
3.2 Rate and period
Interest runs at 1 per cent per month or part of a month from 1 April of the year following the tax year (that is, 1 April 2027 for tax year 2026-27) up to the date of determination of total income under the 2025 Act equivalents of section 143(1) (processing) or section 143(3) / 144 (regular or best-judgment assessment), whichever is earlier.
3.3 Base
The base is the assessed tax minus advance tax paid. Note that interest is computed on the entire shortfall once the 90 per cent threshold is crossed — not just on the excess above 90 per cent. This is a long-standing harsh feature of the provision carried forward into the 2025 Act.
4. Deferment of instalments — the 234C equivalent
4.1 Instalment schedule
The 2025 Act preserves the quarterly advance-tax schedule for taxpayers other than those under the presumptive scheme. The cumulative minimum percentage of estimated tax payable by each instalment date is:
| Instalment due date | Cumulative minimum — non-presumptive | Cumulative minimum — presumptive (44AD/44ADA equivalent) |
|---|---|---|
| 15 June | 15% | Nil |
| 15 September | 45% | Nil |
| 15 December | 75% | Nil |
| 15 March | 100% | 100% |
4.2 Rate and computation
Interest under the 234C equivalent is charged at 1 per cent per month for three months on the shortfall in the first three instalments (that is, 3 per cent per shortfall for each of 15 June, 15 September, 15 December) and at 1 per cent for one month on the shortfall for the 15 March instalment. The rate is, in effect, front-loaded: the 15 June shortfall attracts three months of interest (June, July, August); the 15 September shortfall attracts three months (September, October, November); the 15 December shortfall attracts three months (December, January, February); and the 15 March shortfall attracts one month.
A 12 per cent cushion is granted for the first two instalments — if the taxpayer has paid at least 12 per cent by 15 June and at least 36 per cent by 15 September, no 234C interest applies for those instalments even though the cumulative targets are 15 per cent and 45 per cent respectively.
5. Excess refund — the 234D equivalent
Where a refund has been granted to a taxpayer on processing under the 2025 Act equivalent of section 143(1), and the refund is later found to be excessive on regular assessment under the 143(3) equivalent, interest at 0.5 per cent per month or part of a month is charged on the excess refund. The period runs from the date the refund was granted to the date of the regular assessment order. The 234D equivalent is the mirror image of the interest on refund provision (244A equivalent) — if the Department pays interest when refunding, it recovers interest when the refund turns out to have been excessive.
6. TDS return delay — the 234E equivalent
A deductor who fails to furnish a TDS or TCS statement within the prescribed time is liable to a late fee of Rs 200 per day for every day of default. The maximum cap is the amount of TDS or TCS itself for the relevant period. This is a fee, not a penalty — the Assessing Officer has no discretion to waive it, and it is computed automatically. Extensive jurisprudence under the 1961 Act on the interaction of section 234E with sections 200A and 206CB continues to be relevant under the 2025 Act. In serious or repeated defaults, additional penalty under the equivalent of section 271H may also apply. See our guide on TDS default notice response under the 2025 Act.
7. Interaction with self-assessment tax
Self-assessment tax is tax paid by the taxpayer when filing the return to cover any shortfall between advance tax, TDS/TCS and the final liability. The interaction with interest provisions is nuanced:
- 234A equivalent: Self-assessment tax paid before the filing date reduces the base on which interest is computed for the period up to the payment date. The Supreme Court’s view in Prannoy Roy (under the 1961 Act) — that 234A interest does not apply where self-assessment tax is paid before the due date — continues to be relied upon and has been codified through CBDT circulars.
- 234B equivalent: Self-assessment tax paid before 1 April of the year following the tax year reduces the shortfall and therefore reduces the base for 234B interest from 1 April onwards. Self-assessment tax paid after 1 April reduces 234B interest only from the date of payment.
- 234C equivalent: Self-assessment tax is not relevant to 234C computation. The 234C equivalent looks only at advance-tax instalments actually paid by each cut-off date.
8. Interaction with updated returns
An updated return under the 2025 Act equivalent of section 139(8A) — available for up to 48 months from the end of the relevant tax year as amended by Finance Act, 2026 — requires the taxpayer to pay:
- The tax on the additional income declared;
- Regular interest under the 234A, 234B and 234C equivalents up to the date of filing the updated return;
- Additional tax on the tax-and-interest amount: 25 per cent within 12 months, 50 per cent in months 13 to 24, 60 per cent in months 25 to 36, and 70 per cent in months 37 to 48.
The interest component is therefore additive — it does not replace the base tax or the additional tax. See our guide on updated returns under the 2025 Act for the complete computation template.
9. Waiver under the 220(2A) equivalent
The 2025 Act retains the discretionary waiver power equivalent to section 220(2A) of the 1961 Act. The Principal Chief Commissioner or Chief Commissioner may reduce or waive interest if all three of the following conditions are cumulatively satisfied:
- Genuine hardship: Payment of the interest has caused or would cause genuine hardship to the taxpayer. This is a fact-specific enquiry into financial capacity.
- Cooperation with the Department: The taxpayer has cooperated in the assessment and recovery proceedings. Obstructive conduct defeats the waiver application.
- Circumstances beyond control: The default in payment leading to interest was due to circumstances beyond the taxpayer’s control — illness, natural disaster, seizure of records by an enforcement agency, and the like.
All three conditions must be met. The Assessing Officer cannot waive interest at the assessment stage; waiver is a separate remedy before a designated authority. CBDT has issued detailed instructions on the waiver framework, including monetary limits for each sanctioning authority.
10. Worked examples for tax year 2026-27
Example 1 — Salaried individual with capital gain
Ananya earns salary of Rs 18 lakh and a capital gain of Rs 12 lakh from sale of unlisted shares in January 2027. Her assessed tax (new regime) is Rs 3,20,000. TDS on salary is Rs 1,00,000. She does not pay any advance tax because the capital gain arises only in January. She files the return on 31 July 2027.
- 234A equivalent: Return filed on time, so nil.
- 234B equivalent: Advance tax paid = Rs 1,00,000 (TDS is treated as advance tax for 234B purposes in salary cases). 90 per cent threshold = Rs 2,88,000. Shortfall exceeds threshold. Interest for April 2027 to July 2027 = Rs 2,20,000 × 1% × 4 = Rs 8,800.
- 234C equivalent: On the 15 March 2027 shortfall. Cumulative required = Rs 3,20,000. Paid by 15 March = Rs 1,00,000. Shortfall = Rs 2,20,000. Interest = Rs 2,20,000 × 1% × 1 month = Rs 2,200. (The 15 June, 15 September, 15 December instalments also trigger shortfalls on the capital gain, but under the proviso to the 234C equivalent, interest is not charged on capital-gain shortfall arising from a one-time event, provided the related instalment for the period after realisation is paid on time.)
Example 2 — Small business owner — delayed filing
Imran runs a trading business (non-audit) with total income of Rs 9 lakh for tax year 2026-27. Tax liability (new regime with rebate) is nil up to Rs 12 lakh. No interest applies because there is no tax shortfall.
Example 3 — Company — advance tax shortfall
Maya Enterprises Private Limited has assessed tax of Rs 40,00,000 for tax year 2026-27. Advance tax paid in instalments = Rs 35,00,000 (87.5 per cent of assessed tax, below 90 per cent threshold). Shortfall = Rs 5,00,000. Return filed on 30 October 2027 (audit due date).
- 234A equivalent: Return filed on time, nil.
- 234B equivalent: Rs 5,00,000 × 1% × 7 months (April to October 2027) = Rs 35,000.
- 234C equivalent: Would apply if any instalment was deferred below the cumulative minimum. Assuming the shortfall arose only at the final instalment (100 per cent target Rs 40 lakh, actual paid Rs 35 lakh), interest = Rs 5,00,000 × 1% × 1 month = Rs 5,000.
11. Related articles in the 2025 Act series
- Prosecution under Chapter XXII of the 2025 Act
- Updated return (ITR-U) under the 2025 Act
- Advance tax payment schedule under the 2025 Act
- Settlement Commission abolition and current options
- Vivad se Vishwas 2.0 — dispute resolution scheme
- TDS default notice response
Expert Insight
CA V. Viswanathan: If I had a rupee for every client who treated interest under the 234A/234B/234C equivalents as a “minor rounding issue”, I could retire. The reality is that on a Rs 5 lakh tax shortfall, interest over a twelve-month delay is Rs 60,000 — a 12 per cent hit on the tax itself. For a company with Rs 50 lakh shortfall, the same delay is Rs 6 lakh. Under the 2025 Act, the interest architecture is unchanged — so the practical discipline required of taxpayers is identical. The three rules I give every client from tax year 2026-27 onwards are: first, pay at least 90 per cent of estimated tax as advance tax by 15 March each year, even if you are unsure about the final numbers, because the 234B cliff starts at 90 per cent and interest on the full shortfall is brutal; second, if you know you will miss the return filing deadline, pay the entire estimated liability as self-assessment tax before the due date — this neutralises 234A interest for the period beyond the due date; third, for capital gains realised mid-year, pay the tax with the very next instalment, otherwise the 234C proviso for one-time events is often misapplied and interest is charged. In my experience, taxpayers who get these three rules right save a significant amount every year. And for those already facing big interest liabilities, the waiver under the 220(2A) equivalent is narrow but real — we have secured full and partial waivers in cases involving serious illness, death of a key decision-maker, and seizure of books by an enforcement agency. Contact Virtual Auditor at +91 99622 60333 for interest-computation disputes and waiver applications.
Key Takeaways
- The Income-tax Act, 2025 carries forward the 234A/234B/234C/234D/234E interest framework unchanged from the 1961 Act.
- 234A equivalent — 1 per cent per month for delay in filing return; part of a month counts as a full month.
- 234B equivalent — 1 per cent per month on shortfall in advance tax, from 1 April of the year following the tax year, where advance tax paid is less than 90 per cent of assessed tax.
- 234C equivalent — 1 per cent per month for three months on each instalment shortfall; 12 per cent cushion for the first two instalments; one-month charge only for the 15 March instalment.
- 234D equivalent — 0.5 per cent per month on excess refund; 234E equivalent — Rs 200 per day late fee for TDS/TCS return delay.
- Interest runs on a simple, not compound, basis; it is not deductible while computing total income under any head.
- Self-assessment tax paid before 1 April of the year following the tax year substantially reduces 234B interest; updated returns require interest up to the filing date plus the additional tax.
- Waiver is available under the 220(2A) equivalent only on cumulative satisfaction of genuine hardship, cooperation and circumstances beyond control.
- Due dates for tax year 2026-27: 31 July 2027 (non-audit), 31 October 2027 (audit), 30 November 2027 (transfer pricing).
- Contact Virtual Auditor at +91 99622 60333 for interest-computation review and waiver applications.
Frequently Asked Questions
How is interest for delay in filing a return computed under the 2025 Act?
Interest under the 234A equivalent runs at 1 per cent per month or part of a month on the tax payable reduced by advance tax, TDS/TCS and DTAA relief, from the day after the due date to the date of filing (or to the date of best-judgment assessment if no return is filed).
How is interest for default in advance tax computed?
Interest under the 234B equivalent is 1 per cent per month from 1 April of the year following the tax year on the shortfall between assessed tax and advance tax paid, where advance tax is less than 90 per cent of assessed tax. It runs to the date of determination under processing or assessment.
How is interest for deferment of advance-tax instalments computed?
Interest under the 234C equivalent is 1 per cent per month for three months on each shortfall at 15 June, 15 September and 15 December, and 1 per cent for one month on the 15 March shortfall. A 12 per cent cushion is granted for the first two instalments.
Does interest under the 2025 Act run on a simple or compound basis?
All three principal interest provisions levy simple interest at 1 per cent per month or part thereof. Compounding is not applied, but part of a month is always treated as a full month — a one-day delay attracts a full month of interest.
Is interest under the 2025 Act waivable?
Yes, but narrowly. Under the 220(2A) equivalent, the Principal Chief Commissioner or Chief Commissioner may reduce or waive interest if genuine hardship, cooperation and circumstances beyond control are all cumulatively demonstrated. The Assessing Officer cannot waive interest at the assessment stage.
What is interest on excess refund under the 2025 Act?
Under the 234D equivalent, where a refund granted on processing is later found to be excessive on regular assessment, interest at 0.5 per cent per month is charged on the excess from the date of refund to the date of the regular assessment order.
What is the late fee for TDS return delay?
The 234E equivalent charges Rs 200 per day for every day of default in furnishing a TDS or TCS statement, capped at the amount of TDS/TCS itself. It is a fee, automatically applied, non-waivable at the Assessing Officer level.
How does interest interact with self-assessment tax?
Self-assessment tax paid before 1 April of the year following the tax year reduces 234B shortfall. For 234A, self-assessment tax paid before the due date can extinguish the interest liability. 234C looks only at advance-tax instalments and ignores self-assessment tax.
Who is exempt from advance-tax obligations?
Resident senior citizens aged 60 or above who do not have income from business or profession are exempt from advance-tax obligations and from 234B/234C interest on salary, pension and investment income. All other taxpayers with estimated tax liability of Rs 10,000 or more must pay advance tax.
Is interest under the 2025 Act deductible?
No. Interest under the 234A, 234B, 234C, 234D and 234E equivalents is not deductible under any head of income. This is consistent with the long-standing position under the 1961 Act.
Does interest continue to run during appeal?
Yes. Filing an appeal does not stop interest. Even where stay of demand is granted, interest accrues on the disputed tax until it is paid. If the taxpayer ultimately wins, interest is reversed; if the taxpayer loses, it becomes payable along with the tax.
How does interest work on an updated return?
An updated return under the 2025 Act (48-month window) requires regular interest under the 234A/234B/234C equivalents up to the filing date, plus additional tax of 25 to 70 per cent depending on the stage at which the updated return is filed. The interest is additive to the additional tax.
Is there a minimum threshold before interest applies?
There is no monetary de minimis for 234A equivalent interest — even a one-rupee shortfall triggers interest. 234B and 234C equivalents require advance-tax obligations, which arise only where estimated tax liability exceeds Rs 10,000 after TDS/TCS credit.
Can interest be charged in a reassessment order?
Yes. On reassessment, 234B interest is recomputed on the enhanced assessed tax and runs up to the date of the reassessment order. 234A may also be recomputed if the original return was filed late. This is automatic and does not require a separate notice.
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