Section 425
Section 425: interest for deferment of advance tax
Section 425 charges interest where an assessee pays less than the required cumulative percentage of advance tax by each of the four instalment due dates during the tax year, even if the assessee eventually pays the full amount by year end.
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 instalment table - Section 425(1)
Where an assessee liable to pay advance tax (other than an assessee covered by Section 425(3)) has failed to pay it, or has paid less than the percentage due by each instalment date, interest is charged on the shortfall as per this table:
| Instalment due date | Advance tax due on returned income | Shortfall period | Interest rate |
|---|---|---|---|
| 15th day of June | 15% of the tax due on returned income | Shortfall till 15th day of June | 3% |
| 15th day of September | 45% of the tax due on returned income | Shortfall till 15th day of September | 3% |
| 15th day of December | 75% of the tax due on returned income | Shortfall till 15th day of December | 3% |
| 15th day of March | 100% of the tax due on returned income | Shortfall till 15th day of March | 1% |
Safe-harbour thresholds - Section 425(2)
No interest is payable under Section 425(1) if the advance tax paid on current income:
- On or before the 15th day of June is 12% or more of the tax due on the returned income
- On or before the 15th day of September is 36% or more of the tax due on the returned income
Presumptive-income taxpayers - Section 425(3)
An assessee who declares profits and gains under Section 58(2) (Table Sl. No. 1 or 3), or who is otherwise liable to pay advance tax under Section 404, and who has failed to pay tax or has paid less than the tax due on returned income by the 15th day of March, is liable to pay simple interest at the rate of 1% on the shortfall from the tax due on returned income.
Carve-out for certain last-minute income - Section 425(4)
No interest is payable under Section 425(1) or (3) for a shortfall attributable to under-estimation of, or failure to estimate, the following, provided the assessee pays the tax on that income in full in a remaining advance tax instalment (or by 31 March of the tax year):
- Capital gains
- Income referred to in Section 2(49)(n)
- Income under the head profits and gains of business or profession, accruing or arising for the first time
- Dividend income
Meaning of 'tax due on the returned income' and 'dividend'
"Tax due on the returned income" means the tax chargeable on the total income declared in the return for the tax year in which advance tax is paid or payable, reduced by: tax deducted or collected at source under Chapter XIX-B; relief under Section 157; relief under Section 159(1) or (2) for tax paid outside India; deduction under Section 160 for tax paid outside India; and any tax credit allowed to be set off under Section 206(2)(e) to (h) and Section 206(3) and (4).
For Section 425(4), "dividend" has the meaning assigned in Section 2(40), but excludes sub-clause (e) of that definition.
Frequently asked questions
What interest rate applies for missing an advance tax instalment?
3% on the shortfall for the June, September and December instalments, and 1% on the shortfall for the March instalment, as set out in the Section 425(1) table.
Is there a safe harbour that avoids Section 425 interest?
Yes - Section 425(2) says no interest is payable if advance tax paid by 15 June is 12% or more of the tax due on returned income, or if advance tax paid by 15 September is 36% or more of the tax due on returned income.
Does Section 425 apply differently to presumptive-income taxpayers?
Yes. Under Section 425(3), an assessee declaring profits and gains under Section 58(2) (Table Sl. No. 1 or 3) is charged simple interest at 1% only on shortfall against the 15 March instalment, rather than the four-instalment schedule in Section 425(1).
Is there relief for shortfalls caused by capital gains or dividend income that arose late in the year?
Yes - Section 425(4) waives interest for shortfall attributable to under-estimating capital gains, income under Section 2(49)(n), business income arising for the first time, or dividend income, provided the tax on that income is paid in full in a remaining instalment or by 31 March of the tax year.
Related sections
Want this applied to your actual filing, not just explained?
Plan your advance tax instalments to avoid Section 425 interestLast updated 9 September 2026