New Income Tax Bill: The Finance Ministry has changed the provision of interest recovery on underpayment of advance tax under the new Income Tax Bill. According to the new notification, three percent interest will be charged if the full amount is not deposited by the due date. As per the existing rules, now a minimum of three months’ interest will have to be paid. This reform clarifies the provisions of the Income Tax (No. 2) Bill, 2025, which replaces the Income Tax Act of 1961.
New Income Tax Bill: The Finance Ministry on Tuesday issued a correction notification changing the provision for interest recovery on underpayment of advance tax under the new Income Tax Bill. After this change, the calculation of interest on delay in advance tax payment will be in accordance with the provisions of the current Income Tax Act, 1961.
Provision of 3% interest recovery
According to the new notification issued by the government, if a taxpayer does not deposit the full amount of advance tax by the due date, then three percent interest will be charged on it. This interest will be applicable on the amount underpaid and it will be calculated on the basis of the due date of the respective quarter.
Existing rules for payment of advance tax
As per the current rules, taxpayers who owe tax of Rs 10,000 or more are required to pay advance tax in four installments. The dates for these installments are June 15, September 15, December 15 and March 15. If the taxpayer pays less than the prescribed amount on any of these dates, interest becomes payable.
Old provision in the bill passed in Lok Sabha
The Income Tax (No. 2) Bill, 2025, passed in the Lok Sabha on Monday, earlier had a provision that if the taxpayer makes the short payment on the next day of the quarterly due date, then only one per cent interest for one month would be charged. This provision was different from the existing tax law and was creating confusion.
Clarity provided by reform notification
According to Sandeep Jhunjhunwala, partner at consultancy firm Nangia Andersen LLP, the amendment notification has been issued to bring the old provision in line with the current law. Now it is clear that if the advance tax shortfall is made good even a day before the due date, a minimum of three months’ interest will have to be paid.
Sweeping changes to the new law
The Income Tax (No. 2) Bill, 2025 will completely replace the six-decade-old Income Tax Act, 1961, when it comes into force. The new law will be simplified and more understandable by reducing the number of chapters and sections.
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