Interest on Income Tax Refunds

CA Raj Kumar - Avatar Image Written by CA Raj Kumar - Updated on June 15, 2024. Estimated Reading Time: 2 minutes.
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Normally, an assessee pays tax based on computation of his expected tax liability. And very often his tax liability is either less or higher when he finally computes his actual tax liability at the time of filing of his return. If his actual tax liability is higher, he has to pay such higher tax and there is interest if such additional tax paid is after the due date. Likewise, when his actual tax liability is lower than what he has already paid, he will have right to get refunds. Subject to conditions under the income tax act, he has also right to receive interest on such refunds.

Provisions related to interest on Income Tax refunds are covered under section 244A of the Income Tax Act, 1961. As per this section, current rate of interest on tax refund is 0.5% per month computed as simple interest. i.e., 6% simple interest per annum. This tax refund can be on account of –

  • Excess payment of advance tax
  • Advance tax or fringe benefits
  • Tax deducted at source or collected at source and
  • Other tax or penalty becoming refundable.

The period for which the interest is payable will be based upon the nature of refund.

  1. Where the refund is due to excess payment of advance tax or tax deducted or tax collected at source, the interest will be paid for the period starting from 1st April to the date on which the refund is granted. In order to get refund for such excess tax paid, assessee will have to file income-tax returns. Also for faster processing of refunds, it is advisable to file returns in time and provide correct bank account details to receive such refunds with interest on time.
  2. Where the refund is of other taxes/penalties, the interest on refund will be paid for the period starting from the date of payment of such tax or penalty, upto the date on which the refund is granted.

An assessee can also claim interest on refund due in pursuance of determination of total income under section 143(1) or on regular assessment. But, such interest will be payable only when the amount of refund due is either equal to or higher than 10% of the tax determined under section 143(1) or regular assessment. Additionally, where there is any delay in granting of refund and such delay is due to the assessee himself, interest for such period of delay attributable to the assessee will not be paid. In case of any issue regarding the calculation of delay attributable to the assessee, the Chief Commissioner or Commissioner of Income Tax has the right to decide the period of such delay attributable to the assessee.

Likewise, when an order is passed under sections 143(3) or 144 or 147 or 154 or 155 or 250, 254, 260, 262, 263 or 264 or an order of Settlement Commission under section 245D, the amount of interest will be either increased or decreased based on the amount on which interest will be payable under section 244A as increased or decreased by the order itself. Headings of above mentioned sections are as listed below:

143 – Assessment

144 – Best Judgement Assessment

147 – Income escaping Assessment

154 – Rectification of mistake

155 – Other amendments

250 – Procedure in appeal

254 – Orders of Appellate Tribunal

260 – Decisions of High Court or Supreme court on the case stated

262 – Hearing before Supreme Court

264 – Revision of other orders

Interestingly, such interest granted is the income of the year in which it is granted. And the same has to be added to the total income for that year on declarations of such return of income to be furnished.

Learn how to check the status of income tax refund

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CA Raj Kumar

I love blogging and studying taxation. I write articles related to Tax laws and common issues in handling taxation in India. Often, common but small mistakes make things complicated. I write and share them to save precious time of others.

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