The Finance Ministry has issued a corrigendum to the Income-tax (No. 2) Bill, 2025, introducing revised provisions for charging interest on shortfall in advance tax payments, aligning it with the existing rule.
As per the corrigendum to Clause 425 of the Income-tax (No. 2) Bill, 2025 issued on August 11, the interest provision for shortfall in advance tax payment has now been aligned with that under the old Income-tax Act, 1961.
"The ‘3 percent’ in the provision is simply one percent per month for three months for each instalment shortfall, exactly as under the old Income-tax Act, 1961. In summary, if there is a shortfall in remittance of advance tax even for a day beyond the statutory quarterly due date, interest is charged for a minimum of three months," said Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP.T
Under Clause 425 of the Income-tax (No. 2) Bill, 2025, if the shortfall is made good by the next day for instance, for Q1 where the due date is June 15, if the payment is made on June 16, interest would be charged only for one month at 1% instead of the intended calculation of interest that could be computed for a longer period, such as 1% for three months. This ambiguity has now been restored and aligned with the existing provisions itself," said Jhunjhunwala.
The updated structure is as follows:
| Period | Tax Dues to be Paid | Interest on Shortfall |
| By June 15 | 15 percent | 3 percent |
| By September 15 | 45 percent | 3 percent |
| By December 15 | 75 percent | 3 percent |
| By March 15 | 100 percent | 1 percent |
The interest is calculated on the amount of shortfall after reducing any advance tax already paid before the due date.
Assuming the total advance tax liability for the year is Rs 5 lakh. Under the law, you must pay 15 percent (Rs 75,000) by 15 June and 45 percent cumulatively (Rs 2.25 lakh) by September 15. Suppose you pay only Rs 50,000 by June 15, which results in a shortfall of Rs 25,000 for the June instalment. The Interest is then calculated at 1 percent per month for three months on the shortfall, ie, Rs 25,000 × 1% × 3 months = Rs 750, for three months starting June 16 to September 15.
By September 15, your cumulative payment should have reached Rs 2.25 lakh, but you have paid only Rs 1.70 lakh, which leaves a shortfall of Rs 55,000. Interest is again charged at one percent per month for three months on this shortfall, i.e., Rs 55,000 × 1% × 3 months = Rs 1,650, for the period between September 16 to December 15. In total, the interest payable for these two shortfalls is Rs 2,400, Jhunjhunwala explained.
Advance tax is generally payable by individuals, companies, and other entities with a tax liability of Rs 10,000 or more in a financial year, in four instalments. Senior citizens without business income are typically exempt from this requirement.
The corrigendum will be relevant for taxpayers who miss these deadlines or underpay their instalments, as the interest cost can add up significantly.
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