Sections 216 and 217 of Income Tax Act 1961: Interest on Under-estimated or Unestimated Advance Tax

Sections 216 and 217 formed part of the former advance-tax interest regime under Chapter XVII of the Income Tax Act, 1961. Section 216 dealt with interest where advance tax was under-estimated or payment was wrongly deferred, while Section 217 dealt with interest where the prescribed advance-tax statement or estimate was not furnished.

Present applicability: Sections 216 and 217 do not apply to assessments for assessment year 1989-90 or any subsequent assessment year. Section 214(3) expressly makes Sections 214, 215, 216 and 217 inapplicable from that assessment year onward. They therefore remain relevant principally for understanding the historical law applicable to earlier assessment years.

Section 216 - Interest payable by assessee in case of under-estimate or deferment

Under the historical provision, where the Assessing Officer, while making a regular assessment, found that an assessee had under-estimated advance tax under the then applicable provisions and thereby reduced the amount payable in the first two instalments, or had wrongly deferred payment of advance tax on part of the income, the Assessing Officer could direct payment of simple interest.

The historical rate specified in Section 216 was 15 per cent per annum. For an under-estimate, interest was calculated for the period during which an instalment remained deficient on the relevant shortfall. For wrongful deferment, interest applied for the period for which advance-tax payment was deferred.

The Explanation to Section 216 also contained a deeming rule concerning the due date of an instalment falling before expiry of six months from commencement of the relevant previous year.

Section 217 - Interest payable when no advance-tax estimate was made

Section 217 historically imposed simple interest where a person required by the former Section 209A regime failed to send the prescribed statement or estimate of advance tax. It also covered specified failures to furnish estimates under the then applicable provisions of Sections 209A and 212.

Under Section 217(1), the historical interest rate was 15 per cent per annum from 1 April following the financial year in which advance tax was payable up to the date of regular assessment, calculated on the amount specified by the provision. Section 217(1A) separately addressed certain persons who failed to furnish estimates required by the former statutory scheme.

Section 217(2) applied the relevant provisions of Section 215 concerning calculation, variation, reduction or waiver of interest to interest payable under Section 217.

Why Sections 216 and 217 are historical provisions

Section 214(3) of the Income Tax Act, 1961 provides that Sections 214, 215, 216 and 217 do not apply to an assessment for the assessment year beginning on 1 April 1989 or any later assessment year. Accordingly, Sections 216 and 217 should not be treated as the operative provisions governing present-day defaults in payment or deferment of advance tax.

Current advance-tax interest under the Income Tax Act 1961

For liabilities governed by the Income Tax Act, 1961, the later advance-tax interest regime is principally contained in Sections 234B and 234C. Section 234B deals with interest for default in payment of advance tax, including cases where advance tax paid is less than 90 per cent of assessed tax. Section 234C deals with interest for deferment or shortfall in prescribed advance-tax instalments.

For FY 2025-26 and AY 2026-27, liabilities arising under the 1961 Act continue to be governed by that Act, including applicable interest under Sections 234B and 234C.

Income Tax Act 2025 from tax year 2026-27

Law from 1 April 2026: Income for FY 2026-27 (tax year 2026-27) is governed by the Income Tax Act, 2025. Under the new Act, Section 424 corresponds to the former Section 234B and deals with interest for failure or shortfall in payment of advance tax. Section 425 corresponds to the former Section 234C and deals with interest for deferment of advance-tax instalments.

The Income Tax Department states that there is no policy change in the advance-tax interest rates under the new Act. Section 424 generally applies interest at 1 per cent per month or part of a month for the specified default or shortfall, while Section 425 governs interest for deferment of instalments according to the statutory conditions.

Official references

This article distinguishes the historical operation of Sections 216 and 217 from the provisions applicable to later assessment years and the law governing tax year 2026-27 onward.