Income Tax Law | Charitable Trusts

Section 115TE: Interest on Delayed Payment of Accreted Income Tax

Section 115TE of the Income-tax Act, 1961 imposed simple interest for delayed payment of tax on accreted income by a specified person. The provision must be read with Section 115TD, which determines when the tax arises and when it is due. For the tax year beginning 1 April 2026, the corresponding rules are consolidated in Section 352 of the Income-tax Act, 2025.

Legal position in 2026: Section 115TE remains relevant for liabilities governed by the Income-tax Act, 1961. Under the Income-tax Act, 2025, Section 352(6) provides the interest mechanism for delayed payment of accreted-income tax. The applicable law depends on the relevant period and transition provisions.

What is Section 115TE?

Under Section 115TE, where the principal officer or trustee of a specified person and the specified person fail to pay all or part of the tax on accreted income referred to in Section 115TD(1) within the period permitted by Section 115TD(5), simple interest is payable at 1% for every month or part of a month on the unpaid tax. Interest runs from the day immediately after the last date for payment until the date of actual payment.

The Finance Act, 2022 replaced references to a "trust or institution" with "specified person" with effect from 1 April 2023. The expression is defined by the Explanation to Section 115TD and covers entities within the statutory scope of the accreted-income tax regime.

When does interest become payable?

First determine whether additional income-tax on accreted income is payable under Section 115TD, including applicable conversion, merger, dissolution or other statutory events. Next identify the precise payment due date under Section 115TD(5). Interest under Section 115TE applies only if the tax remains wholly or partly unpaid after that date.

Rate and calculation of interest

Interest = unpaid accreted-income tax x 1% x number of months or parts of months of delay. Any part of a month counts as a full month for this calculation.

Illustration

Assume tax on accreted income of Rs. 5,00,000 is payable by 14 July and is paid on 20 September. The delay covers part of July, all of August and part of September: three months or parts thereof. Interest is Rs. 5,00,000 x 1% x 3 = Rs. 15,000. This is an illustration only; the actual due date must be determined from the applicable statutory event.

Section 115TD - Tax on accreted income

This provision imposes additional tax on accreted income of covered entities in specified circumstances and determines valuation and payment requirements. Broadly, accreted income is based on the fair market value of assets less liabilities, subject to statutory adjustments.

Section 115TF - Assessee in default

Failure to pay tax on accreted income can also attract deemed assessee-in-default consequences and recovery action under Section 115TF. Interest under Section 115TE is distinct from the underlying tax and recovery provisions.

Section 352 of the Income-tax Act, 2025

The newer Act consolidates the tax on accreted income, interest and recovery rules. Section 352(6) provides simple interest calculated at 1% per month or part thereof for delayed payment, while Section 352(7) addresses collection, recovery and default.

Practical compliance checklist

Identify whether the entity falls within the definition of specified person.
Determine the triggering event and valuation date for accreted income.
Calculate the tax and verify the payment deadline under the applicable law.
Where payment is late, count each month or part of a month and calculate interest on the unpaid amount.
Retain valuation reports, tax calculations, challans and supporting records.

Frequently asked questions

Is Section 115TE interest simple or compound?

It is simple interest at 1% for every month or part of a month of delay.

Does interest apply if only part of the tax is unpaid?

Yes. Interest is computed on the unpaid portion of the tax for the relevant delay period.

What provision applies from 1 April 2026?

Section 352(6) of the Income-tax Act, 2025 contains the corresponding interest rule, subject to the applicable transition and saving provisions for earlier periods.

Official statutory sources

Updated: 27 October 2026. This article is general legal information; verify the applicable assessment or tax year and subsequent amendments before acting.