TaxSaral
Section 425Interest & Penaltieswas Section 234C in IT Act 1961

Interest for Deferment of Advance Tax Instalment

If you miss or underpay an advance tax instalment, interest at 1% per month for 3 months is charged on the shortfall for each instalment.

Who this applies to

Taxpayers who miss or underpay any of the four advance tax instalments during the year.

Key Points

  • Charged per instalment — each missed due date triggers a separate 3-month interest charge.
  • Unlike Section 424 (which runs from April 1 to payment date), Section 425 is always exactly 3 months per shortfall.
  • Self-employed individuals under presumptive taxation (Section 58) pay advance tax as one instalment by March 15 — Section 425 applies only if that is missed.
  • If you discover additional income mid-year, pay extra advance tax immediately to minimise Section 425 interest.

Worked Example

1

Missing the June 15 instalment

Scenario

Farhan has advance tax liability of ₹2,00,000 for TY 2026-27. He pays nothing by June 15 (15% due = ₹30,000) and then pays the full ₹90,000 (45% cumulative) by September 15.

Calculation

June 15 shortfall:
  Required: 15% × ₹2,00,000 = ₹30,000
  Paid by June 15: ₹0
  Shortfall: ₹30,000

Section 425 interest on June shortfall:
  ₹30,000 × 1% × 3 months = ₹900

(September payment covers June shortfall too,
but Section 425 still charges 3 months interest
on the amount that should have been paid in June)

Result

Farhan pays ₹900 in Section 425 interest for the June deferment. Even though he paid all the catch-up amount by September, the 3-month penalty for the June shortfall is unavoidable. This is separate from any Section 424 interest at year-end.

Related Sections

Section 424Interest for Default in Advance Tax
Section 423Interest for Late Filing of Return
Sections 403–408Advance Tax — Obligation and Instalments

Still have questions about Section 425?

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Section references are based on the Income Tax Act 2025 (Tax Year 2026-27). Examples are illustrative — verify with a Chartered Accountant before filing.