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CS Executive · Tax Laws and Practice · Procedural Compliance under Income Tax

Ravi, an assessee liable to advance tax, estimated no capital gains but earned a long-term capital gain on 20 December. His advance tax paid by 15 December and earlier instalments was based on his other income. He paid in full the tax on the capital gain by 15 March. Under the Income-tax Act, 2025, interest for shortfall caused by the capital gain is:

No interest is payable on the shortfall caused by the capital gain. The Act exempts shortfalls arising from underestimating capital gains if the assessee pays the full tax on that income in a remaining instalment or by 31 March, and Ravi paid by 15 March.

  1. ANot payable under section 425(1), since the shortfall is from underestimation of capital gains and tax thereon was paid in full in a remaining instalmentCorrect
  2. BPayable at 3% for all three instalments before December
  3. CPayable at 1% per month until the return is filed
  4. DPayable only if the gain exceeds ₹1,00,000

Explanation

Section 425(4) removes interest where the shortfall arises from underestimating or failing to estimate capital gains and the assessee pays the tax on it in full in any remaining instalment or by 31 March. Ravi paid by 15 March, so the condition is met. No monetary threshold exists in the provision.

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