Section 423
Section 423: interest for default in furnishing return of income
Section 423 is the interest charge for late or non-filing of a tax return. It uses a simple formula - 1% per month on the unpaid tax - but the tricky part is working out exactly which dates the interest period runs between, which depends on whether a return was filed at all, whether a regular assessment was made, and whether the return followed a notice.
This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.
The formula - Section 423(1)
"Where the return of income for any tax year is furnished after the due date or is not furnished, the assessee shall be liable to pay simple interest as per the following formula:-- I = 1% x A x T where,-- I = the interest payable; A = the amount of tax on which interest is payable, as specified in sub-section (2); T = number of months comprised in the period commencing on the date immediately following the starting date and ending on the end date, both specified in sub-section (2)."
Starting date, ending date and the amount of tax on which interest runs - Section 423(2)
Section 423(2) sets out a table specifying, for four different circumstances, the starting date, the ending date, and the amount of tax on which interest is payable (referred to as "A" in the formula):
| Circumstance | Starting date | Ending date | Amount of tax on which interest is payable |
|---|---|---|---|
| Return furnished under Section 263(1), (4) or (6), or in response to a notice under Section 268(1), after the due date | Due date for furnishing the return of income under Section 263(1) | Date of furnishing the return | Where a regular assessment is not made: tax on total income under Section 270(1), less tax paid. Where a regular assessment is made: tax on total income under the regular assessment, less tax paid |
| No return furnished under Section 263(1), (4) or (6), or in response to a notice under Section 268(1) | Due date for furnishing the return under Section 263(1) | Date of completion of the assessment under Section 271 | Tax on total income determined under regular assessment, less tax paid |
| Return required by a notice under Section 280, issued after determination of income under Section 270(1) or after completion of an assessment under Section 270(10), 271 or 279, is furnished after the time allowed under the notice | The last date of time allowed under such notice | Date of furnishing the return | Amount by which tax on total income under the reassessment/recomputation exceeds tax on total income under Section 270(1) or the earlier assessment under Section 270(1), 271 or 279 |
| Return required by a notice under Section 280, issued after determination of income under Section 270(1) or after completion of an assessment under Section 270(10), 271 or 279, is not furnished | The last date of time allowed under such notice | Date of completion of the reassessment or recomputation under Section 279 | Amount by which tax on total income under the reassessment/recomputation exceeds tax on total income under Section 270(1) or the earlier assessment under Section 270(1), 271 or 279 |
Adjustment where the tax figure later changes - Section 423(3)
Where, as a result of an order under Section 287, 288, 359, 363, 365(10), 368, 377 or 378, the amount of tax on which interest was payable under Section 423(1) and (2) is increased or reduced, the interest is increased or reduced accordingly.
If the interest is increased, the Assessing Officer serves a fresh notice of demand specifying the sum payable, which is treated as a notice under Section 289. If the interest is reduced, the excess interest already paid is refunded.
Definitions and adjustments - Section 423(4) and (5)
"Tax on total income" as determined under Section 270(1), and "tax on total income" determined under a regular assessment, do not include the additional income-tax, if any, payable under Section 267.
Interest payable under Section 423(1) is reduced by any interest already paid under Section 266 towards the interest chargeable.
"Tax paid" means: advance tax paid; tax deducted or collected at source; relief allowed under Section 157; relief under Section 159(1) for tax paid in a country outside India; relief under Section 159(2) for tax paid in a specified territory outside India; deduction from Indian income-tax payable under Section 160 for tax paid in a country outside India; and any tax credit allowed to be set off under Section 206(2)(e) to (h) and Section 206(3) and (4).
Where, for any tax year, an assessment is made for the first time under Section 279, that assessment is treated as a regular assessment for the purposes of this section.
Frequently asked questions
What is the interest rate for late filing of a return under Section 423?
Simple interest of 1% for every month or part of a month, applied using the formula I = 1% x A x T, where A is the tax on which interest is payable and T is the number of months in the relevant period specified in Section 423(2).
Does interest under Section 423 apply if I never file a return at all?
Yes. Section 423(2) specifically covers the case where no return has been furnished, running interest from the due date for furnishing the return until the date the assessment under Section 271 is completed.
Can Section 423 interest be adjusted later?
Yes - under Section 423(3), if the tax amount on which interest was charged is later increased or reduced as a result of an appellate or other specified order, the interest is recalculated accordingly, with excess interest refunded or additional interest demanded.
Related sections
Want this applied to your actual filing, not just explained?
Calculate your interest for late filing of returnLast updated 9 September 2026