Drafting error on advance tax interest rectified in new Income Tax Bill 2025; what does this mean for taxpayers

The Lok Sabha Select Committee had recommend to correct a key drafting error in the revised Income Tax Bill 2025, ensuring that the long-standing rules for charging penal interest on shortfalls in advance tax payments remain intact. The correction comes via a formal corrigendum issued on August 11, a day after the revised Bill was tabled in Parliament. 

The initial draft of the Bill, presented on August 11, had proposed that taxpayers failing to pay the required instalments of advance tax would be liable to pay simple interest at the rate of 1% per month or part thereof for the period of delay. This language suggested that interest charges could be lower for those who made up the shortfall earlier, moving away from the current fixed-rate system under Section 234C of the Income Tax Act, 1961.

Under the existing law (1961), if a taxpayer delays payment of any of the first three instalments—due on June 15, September 15, and December 15 by even a single day, they must pay a flat 3% interest for that instalment period. The rate drops to 1% for the final instalment due on March 15. This fixed-rate method ensures that the penal interest is applied uniformly, regardless of how quickly the shortfall is made up.

The Select Committee’s corrigendum reinstates this system. The updated Clause 425 specifies a flat 3% interest for shortfalls in the first three instalments and 1% for the final instalment, aligning the new Bill with the provisions of the current Income Tax Act.

Explaining the change, CA Dr Suresh Surana clarified that the correction does not increase the financial burden on taxpayers:

“The corrigendum does not imply that the penal interest on advance tax has been tripled across all periods,” he said.

He noted that under the original draft of the Bill, the interest for shortfalls was set at 1% per month, mirroring the approach in Section 234C. However, the corrigendum replaces this with a consolidated flat charge for each instalment period.

“For instance, the interest on shortfall in advance taxes for the first three instalments—those due on June 15, September 15, and December 15—is levied at a flat rate of 3% for the respective period. The interest on shortfall for the last instalment due on March 15 remains at 1%. It is important to note that the 3% is a one-time levy for the relevant instalment period and not a monthly rate,” Surana explained.

Sameer Mathur, MD and Founder of Roinet Solution, said: "The interest rates in Clause 425—3% for the first three instalments and 1% for the last—mirror existing provisions, ensuring taxpayers face no new burden during the shift to the new Bill. The approach promotes clarity and consistency in compliance. It avoids unnecessary disruption in advance tax compliance. The 3% and 1% rates strike a balance between safeguarding revenue and providing certainty to taxpayers during legislative transition."

Dr Surana further emphasised that the change is essentially one of presentation rather than substance:

“While the original Bill prescribed a simple interest of 1% per month for each quarter, the corrigendum consolidated this into a flat levy of 3% for the quarterly instalments, which equates to the same overall interest cost for that quarter. Accordingly, there is no substantive change in the effective interest burden; the amendment is primarily a change in the manner of computation and presentation.”

Surana explained that while the original Bill applied simple interest at 1% per month for each quarter’s advance tax shortfall, the corrigendum replaced this with a flat 3% charge per quarterly instalment — effectively resulting in the same total interest cost for that quarter.