Section 423 Income Tax Act 2025: How Is Interest for Late Filing of ITR Calculated?
Section 423 of the Income-tax Act, 2025 imposes simple interest when a return of income is furnished after the prescribed due date or is not furnished. This guide explains the 1% formula, relevant periods, tax credits and reassessment rules.
What does Section 423 provide?
Under Section 423(1), an assessee who files a return after the due date, or fails to furnish a required return, is liable to simple interest determined under the formula in that subsection. Section 423(2) prescribes the relevant starting date, ending date and tax base for different circumstances, including delayed returns, non-filing and defaults relating to notices for reassessment or recomputation.
What is the interest calculation formula?
I = interest payable; A = applicable tax amount under Section 423(2); T = number of months in the statutory period, including a part of a month where applicable.
The interest is simple, not compound. The applicable tax base is determined under the statutory table and after the permitted reductions; it is not necessarily the gross tax appearing in the return.
When does interest start and end?
| Situation | Starting reference | Ending reference |
|---|---|---|
| Return filed late under Section 263 or after notice under Section 268(1) | Due date under Section 263(1) | Date return is furnished |
| Required return not furnished | Due date under Section 263(1) | Completion of assessment under Section 271 |
| Late or missing return following notice under Section 280 in circumstances covered by Section 423(2) | Expiry of time allowed in notice | Return filing or reassessment/recomputation completion, as applicable |
The statute calculates months for the period commencing immediately after the relevant starting date. Any part of a month within that period is counted in applying the monthly rate. For reassessment, the relevant tax base generally concerns the increase in tax resulting from reassessment or recomputation, as specified in the table.
Which payments and credits reduce the tax base?
Section 423(4) defines tax paid for this purpose to include, subject to the provision:
- Advance tax paid.
- Tax deducted or collected at source (TDS/TCS).
- Applicable relief under Section 157.
- Foreign-tax relief under Section 159(1) or (2), and deductions under Section 160.
- Specified tax credits allowed under Section 206.
Additional income-tax under Section 267 is excluded from the tax amounts specified in Section 423(4)(a) and (b). Interest already paid under Section 266 towards the same interest liability is reduced under Section 423(4)(c).
Examples of interest for late filing
Example 1: Two months and part of another month
Assume that the applicable tax base after permitted reductions is Rs. 40,000 and the statutory interest period covers two complete months and part of a third month. T is 3 months. Interest = 1% × Rs. 40,000 × 3 = Rs. 1,200.
Example 2: No unpaid tax base
Where the statutory computation of A results in zero after permitted tax payments and credits, interest under the formula is zero. This does not by itself rule out any separately applicable late-filing fee or other consequence.
Example 3: Return not filed
Where a required return is not furnished, the statutory table may run the interest period to completion of assessment under Section 271. The assessed tax amount and eligible payments determine the base. The calculation therefore cannot be made merely from the filing due date.
What happens if an assessment or appeal changes the tax?
Under Section 423(3), where specified orders increase or reduce the tax on which interest was payable, interest is increased or reduced accordingly. If increased, the Assessing Officer serves the prescribed demand notice; if reduced, excess interest paid is refundable. Section 423(5) treats a first assessment made under Section 279 as a regular assessment for this section.
Relevant statutory definitions and cross-references
Related provisions include Section 263 (returns), Sections 266 and 267, Section 270, Section 271, Section 279 and Section 280. Interest under Section 423 is distinct from any late-return fee under Section 428.
Frequently asked questions
Is interest under Section 423 charged at 1% per month?
Yes. Section 423(1) prescribes simple interest at 1% multiplied by the statutory tax base and number of months in the applicable period.
Does a part of a month count?
Yes. The applicable monthly computation counts a part of a month within the relevant statutory period.
Is interest payable even if the entire tax was paid?
It depends on the computation of A under Section 423(2) and the permitted payments and credits. A zero tax base produces zero interest under the formula.
Is Section 423 the same as Section 234A of the old Act?
It is the corresponding provision for late-return interest under the 2025 Act, but the relevant year and precise statutory language must be checked.
Is late-filing interest the same as a late-filing fee?
No. Section 423 concerns interest, while Section 428 addresses a separate fee for default in furnishing a return of income.
Official statutory references
Updated: 12 November 2026. This article is general information and should be read with the official statutory text, rules and applicable notifications.