Interest for Late Advance Tax: How 234B and 234C Work Now

Late or short advance tax costs simple interest at 1% a month. Section 234C (now section 425) charges it when an instalment falls short. Section 234B (now section 424) charges it if you paid under 90% of your tax by 31 March. The next instalment for tax year 2026-27 is due on 15 December 2026.

Key facts

Who has to pay advance tax

Under section 404 of the Income-tax Act, 2025, you pay advance tax if your tax for the year, after TDS and TCS, is ₹10,000 or more. The e-Filing portal confirms this threshold is unchanged from the old Act.

Salaried people whose employer deducts enough TDS usually owe little or nothing. You are more likely to owe advance tax if you have freelance income, rent, capital gains, interest or dividends on which too little tax was deducted.

Section 403 exempts a resident individual aged 60 or more at any time in the year who has no business or professional income. Our advance tax guide covers the basics of estimating and paying; this page is about the interest when you fall short.

Instalment schedule for 2026-27

If you declare income under the presumptive taxation scheme in section 58 of the new Act, which absorbs the old sections 44AD, 44ADA and 44AE, you pay the whole amount in one instalment by 15 March 2027. Anything paid by 31 March 2027 still counts as advance tax for the year, under section 408(3).

The portal notes that advance tax for tax year 2026-27 is paid under the 2025 Act. On e-Pay Tax, choose the Income Tax Act 2025 tile and Tax Year 2026-27. Our guide to paying income tax online shows each step.

Interest on deferred instalments (234C / section 425)

Section 425 charges interest on the shortfall at each instalment date. The shortfall is the amount due by that date minus what you have paid. The Act sets the charge as:

• June, September and December: 3% of the shortfall, which works out to 1% a month for three months.
• March: 1% of the shortfall.

The charge for an instalment is fixed on its due date. Paying a missed September amount now will not reduce the September interest, but it cuts the shortfall counted on 15 December.

Two reliefs apply:

• No interest for June if you paid at least 12% of the tax, and none for September if you paid at least 36%.
• No interest on a shortfall caused by capital gains, lottery or similar winnings, dividends, or new business income, if you pay the tax on it in the remaining instalments or by 31 March.

Section 425 works on “tax due on returned income”, meaning tax on the income in your return minus TDS, TCS and specified reliefs.

Interest on year-end shortfall (234B / section 424)

Section 424 applies if you paid no advance tax, or paid less than 90% of the assessed tax. Assessed tax is your final tax minus TDS, TCS and specified reliefs.

The charge is 1% for every month or part of a month. It runs from 1 April after the tax year until your income is determined under section 270(1) (the old section 143(1)), or until regular assessment. It is charged on the whole assessed tax if you paid nothing, or on the shortfall if you paid something.

If you pay self-assessment tax before that point, interest stops on the part you have paid. So paying the balance soon after 31 March limits the charge.

Worked example

Suppose your tax for 2026-27 after TDS is ₹1,00,000. You pay ₹10,000 by 15 June, ₹20,000 more by 15 September, nothing in December, and ₹50,000 by 15 March. Your total advance tax is ₹80,000.

Deferment interest under section 425 comes to ₹2,150.

You also paid ₹80,000, which is below 90% of ₹1,00,000 (₹90,000). Section 424 therefore applies to the ₹20,000 shortfall. If you pay it as self-assessment tax on 20 July 2027, that covers April, May, June and part of July, which is four months. The charge is 4% of ₹20,000, or ₹800.

Total interest: ₹2,950. Had you paid ₹90,000 by 31 March, section 424 would not have applied at all. Try your own numbers in the advance tax calculator.

New section numbers and what stays the same

The Income-tax Act, 2025 took effect on 1 April 2026. The e-Filing portal says there is no policy change in advance tax, only simpler wording, with a formula for computing liability in section 405.

• Section 234B is now section 424, and section 234C is now section 425.
• Section 207 (who pays) maps to section 403, 208 to 404, and 211 (instalments) to section 408.
• For FY 2025-26, the portal says interest on short advance tax is still charged under sections 234B and 234C of the 1961 Act, even if levied after 1 April 2026.

The full mapping is in our old vs new section numbers table. If you expect an assessment that could change your assessed tax, a chartered accountant can check the interest the department computes.

Frequently asked questions

What is the interest rate on late advance tax?

Simple interest at 1% a month or part month under section 424 (old 234B). Section 425 (old 234C) charges 3% of the shortfall for each of the first three instalments and 1% for March.

I missed the 15 September 2026 instalment. What should I do?

Pay the amount now. The September interest is already fixed, but paying before 15 December lowers the December shortfall and the interest on it.

Do salaried employees have to pay advance tax?

Only if tax after TDS is ₹10,000 or more for the year, usually because of other income such as rent, interest or capital gains.

Are senior citizens liable to pay advance tax?

Resident individuals aged 60 or more with no business or professional income are exempt under section 403.

Do 234B and 234C both apply to the same shortfall?

They can. Section 425 charges for late instalments during the year, and section 424 charges from 1 April if you paid less than 90% of assessed tax.

How is interest calculated if capital gains came late in the year?

No deferment interest applies to the shortfall from those gains, if you pay the tax on them in the remaining instalments or by 31 March.

Which Act applies to interest for FY 2025-26?

The Income-tax Act, 1961. The portal says sections 234B and 234C apply, even if interest is levied in 2026-27.

Sources

• Tax Payments FAQ under the Income Tax Act 2025 — Income Tax Department e-Filing portal (checked 16 Sep 2026)
• Create challan (e-Pay Tax) user manual — Income Tax Department e-Filing portal (checked 16 Sep 2026)
• Objective and scope of the new Act — Income Tax Department e-Filing portal (checked 16 Sep 2026)
• Income-tax Act, 2025 bare Act with section mapping (sections 403 to 425) — ICAI Direct Taxes Committee (checked 16 Sep 2026)