Chapter XIX - Collection and Recovery of Tax
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.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(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% × A × 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).
(2) For sub-section (1), in respect of the circumstances specified in column B of the Table below, the starting date shall be the date specified in column C, the ending date shall be the date as specified in column D and the amount of tax on which interest is payable is specified in column E:
| Sl. No. | Circumstances | Starting date | Ending date | The amount of tax on which interest is payable |
|---|---|---|---|---|
| 1 | Where the return is 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 of the return. | (a) Where a regular assessment is not made, tax on the total income as determined under section 270(1) as reduced by tax paid; (b) Where a regular assessment is made, tax on the total income determined under regular assessment as reduced by tax paid. |
| 2 | Where no return has been furnished under section 263(1), (4) or (6) or in response to a notice under section 268(1). | Due date for furnishing the return of income under section 263(1). | Date of completion of the assessment under section 271. | Tax on the total income determined under regular assessment as reduced by tax paid. |
| 3 | (a) Where return of income is required by a notice under section 280 issued after the determination of income under section 270(1) or after the completion of an assessment under section 270(10) or 271 or 279; and (b) such return is furnished after the expiry of the time allowed under such notice. | The last date of time allowed under such notice. | Date of furnishing the return. | Amount by which the tax on the total income determined on the basis of such reassessment or recomputation exceeds the tax on the total income determined under section 270(1) or on the basis of the earlier assessment under section 270(1) or 271 or 279. |
| 4 | (a) Where return of income is required by a notice under section 280 issued after the determination of income under section 270(1) or after the completion of an assessment under section 270(10) or 271 or 279; and (b) no return is furnished. | The last date of time allowed under such notice. | Date of completion of the reassessment or recomputation under section 279. | Amount by which the tax on the total income determined on the basis of such reassessment or recomputation exceeds the tax on the total income determined under section 270(1) or on the basis of the earlier assessment under section 270(1) or 271 or 279. |
(3) Where as a result of an order under section 287 or 288 or 359 or 363 or 365(10) or 368 or 377 or 378, the amount of tax on which interest was payable under sub-sections (1) and (2) has been increased or reduced, the interest shall be increased or reduced accordingly, and in a case— (a) where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in such form as may be prescribed specifying the sum payable, and such notice of demand shall be deemed to be a notice under section 289 and the provisions of this Act shall apply accordingly; (b) where the interest is reduced, the excess interest paid, if any, shall be refunded.
(4) For the purposes of this section,— (a) tax on total income as determined under section 270(1)shall not include the additional income-tax, if any, payable under section 267; (b) tax on the total income determined under regular assessment shall not include the additional income-tax payable under section 267; (c) interest payable under sub-section (1) shall be reduced by the interest, if any, paid under section 266 towards the interest chargeable; (d) “tax paid” means— (i) advance tax, if any, paid; (ii) any tax deducted or collected at source; (iii) any relief of tax allowed under section 157; (iv) any relief of tax allowed under section 159(1) on account of tax paid in a country outside India; (v) any relief of tax allowed under section 159(2) on account of tax paid in a specified territory outside India referred to in that section; (vi) any deduction, from the Indian income-tax payable, allowed under section 160, on account of tax paid in a country outside India; and (vii) any tax credit allowed to be set off as per section 206(2)(e) to (h) and 206(3) and (4).
(5) Where for any tax year, an assessment is made for the first time under section 279, the assessment so made shall be regarded as a regular assessment for the purposes of this section.
Introduction
Section 423 calculates simple interest where a required income return is filed after the section 263(1) due date or is not filed. Its formula uses a statutory tax base and month period, with different table rows for the filing situation.
The tax base is not automatically the gross amount shown on the return. The section specifies credits and later assessment adjustments that can change the interest calculation.
Key takeaways
Late-return interest
The section applies when a required return is filed after its due date or not filed.
Formula
The primary computation is 1% multiplied by the defined amount and time factor; both are specified in the section.
Payment credits
The amount definition takes account of specified advance tax, TDS/TCS and other statutory credits.
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.
Step-by-step flow for applying Section 423
- 1
Was the return filed after the due date or not filed?
- No: No interest under Section 423.
- Yes: Go to the next step.
- 2
Which row of the Table in Section 423(2) applies?
Late return, no return, or late or no return in response to a Section 280 notice. The row fixes the starting date, ending date and amount of tax (A).
- 3
Compute A
For a late return: tax on total income (as determined or assessed) less tax paid.
- 4
Count T
Months, including a part month, from the day after the starting date to the end date.
- 5
Interest I = 1% x A x T
Practical checklist
Do
- Identify whether the return was late-filed or not filed and select the corresponding subsection (2) table row.
- Record the section 263(1) due date, actual filing or assessment date, and the statutory start and end dates for the row.
- Calculate the defined tax amount after the specified advance-tax, TDS/TCS and relief credits; retain computation records.
- Recheck interest if a later assessment, appeal or rectification changes the underlying tax.
Avoid
- Do not multiply 1% by total income or by the gross assessed tax without applying the section’s definition of A.
- Do not reuse the same end date for a late return and a case in which no return was filed.
Illustrative example
Worked example: return filed three months late
Hypothetical facts (illustration only, not a real taxpayer): An individual's return was due on the Section 263(1) due date but was filed about three months later (covering three months or part months). Tax on total income is ₹1,50,000, and TDS plus advance tax paid is ₹1,10,000.
Row
A return furnished after the due date, so the starting date is the due date and the end date is the filing date.
A
₹1,50,000 - ₹1,10,000 = ₹40,000.
Interest
1% x ₹40,000 x 3 = ₹1,200.
Outcome
- Interest of ₹1,200 is payable under Section 423.
- Late filing may also attract a fee and affect loss carry-forward; check those provisions separately.
Glossary
- A in the interest formula
- The amount of tax on which interest is payable, determined under section 423(2) for the applicable case.
- T in the interest formula
- The number of months in the period defined by the applicable section 423(2) table row.
Frequently asked questions
What is the interest rate for late filing of a return under Section 423?
Simple interest is calculated as 1% × A × T, using the statutory tax amount and month period. 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. For the ordinary no-return case, table row 2 identifies the section 263(1) due date as the starting date and completion of the section 271 assessment as the ending date. Subsection (1) counts the period from the day immediately following that starting date. A section 280 notice case has its own row and dates.
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.
Need help applying this provision to your situation?
Calculate your interest for late filing of returnLast updated 10 October 2026