Income tax interest, late fees and penalties
2 min read
Updated 03 Oct 2026
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AI summary
What you pay for late returns, short advance tax and under-reported income, and how an updated return can help.
9 sections
Key facts
- Interest is compensation for paying tax late and is charged at 1% per month or part of a month on the unpaid tax.
- Late fee is a fixed charge for filing the return after the due date.
- Penalties are for under-reporting or misreporting income and for missing compliance like a tax audit.
Interest
| What | Section (2025 Act / old) | Rate and period |
|---|---|---|
| Late filing of return | 423 / 234A | 1% a month on tax unpaid, from the due date to the filing date |
| Advance tax short (below 90% of tax) | 424 / 234B | 1% a month from 1 April of the next year to the date of payment |
| Advance tax instalment short | 425 / 234C | 1% a month for 3 months on each short instalment (1 month for the March instalment) |
| Interest on refunds paid to you | 437 / 244A | 0.5% a month |
Late fee for the return (old section 234F)
- ₹5,000 if the return is filed after the due date.
- ₹1,000 if total income is up to ₹5 lakh.
- No fee if income is below the basic exemption limit and filing is voluntary.
- A belated return also means business and capital losses cannot be carried forward (house property loss is an exception).
Penalties
| Default | Penalty |
|---|---|
| Under-reporting income (section 439, old 270A) | 50% of the tax on the under-reported income |
| Misreporting (fake expenses, suppressed facts) | 200% of that tax |
| Tax audit not done (old 271B) | 0.5% of turnover, up to ₹1.5 lakh |
| Cash loan or deposit of ₹20,000 or more (old 271D/271E) | Equal to the amount |
| Cash receipt of ₹2 lakh or more (old 271DA) | Equal to the amount |
| TDS return filed late | ₹200 a day, up to the TDS amount, plus penalty ₹10,000 to ₹1 lakh if over a year late |
Updated return (ITR-U)
You can file an updated return within 4 years from the end of the tax year to add missed income, by paying extra tax:
| Filed within | Additional tax on tax + interest |
|---|---|
| 12 months | 25% |
| 24 months | 50% |
| 36 months | 60% |
| 48 months | 70% |
This avoids under-reporting penalty for that income. It cannot be used to reduce income or increase a refund.
Common questions
Is interest under section 424 charged if I am salaried?
Usually not, because your employer deducts TDS. If you have other income (interest, capital gains, rent) and total tax after TDS is ₹10,000 or more, you must pay advance tax.
Can penalty be waived?
For under-reporting (not misreporting), you can apply for immunity within one month of the assessment order if you pay the tax and interest and do not appeal.
Sources
Law as of October 2026. Verify against the latest notifications before relying on it for filings.
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