ITR refund interest rules explained; What the income tax law says

Tax lae

• Many taxpayers received refunds without the interest component
• Interest is paid only under specific conditions and timelines
• Taxpayers can file for rectification if interest is underpaid

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Tax professionals say a large number of taxpayers have received their income tax refunds over the past few days, with many of them high-value refunds. However, on X, many taxpayers have raised concerns after receiving their income tax refund without the applicable interest component.

How is the interest payable by the government calculated?

A taxpayer is entitled to receive simple interest at 0.50 percent for every month or part of a month, where the refund becomes due based on the return filed. “The interest is calculated from April 1st of that Assessment Year until the date the refund is granted. In case the filing is late, then interest is calculated only from the date the taxpayer actually filed the return until the date the refund is granted,” said Rohit Jain, Managing Partner, Singhania & Co.

However, in certain circumstances, the taxpayer may either be ineligible for interest or receive it for a reduced period. Gopal Bohra, Partner -Tax, N.A.Shah Associates explains situations where interest is paid less or nil. For instance:

• No interest is payable if the refund amount is less than 10 percent of the tax determined under section 143(1).
• If the return of income is filed after the due date prescribed under section 139(1), the interest shall be granted only for the period from the date of filing of the return to the date on which the refund is granted.
• Where the proceedings resulting in the refund are delayed for reasons attributable to the taxpayer, wholly or in part, the period for such shall be excluded from the period for which interest is payable.

What should the taxpayer do if the interest amount is less?

A taxpayer should first check the email ID and mobile number provided in the e-filing portal. Taxpayer may have received communications from the Department by now. Intimation under Section 143(1) will be issued once the filed tax return is processed. The intimation copy will show computation as per the taxpayer and as per the tax department. Thus, differences can be easily ascertained and learn what went wrong or whose mistake it was.

As per the law, “The taxpayer is entitled to interest up to the date of actual grant of refund. Accordingly, where there is a significant delay between the date of intimation under section 143(1) and the actual date of refund, the taxpayer can file a rectification application to CPC seeking grant of additional interest,” Bohra said.

What are the reasons for the delay in tax refunds?

· Discrepancies between the income disclosed in the ITR and the figures in Form 26AS or AIS.

· Errors in bank account information or accounts that are not validated for refund credit. Deductions or exemptions claimed without eligibility or proper backing.

· Income tax return not e-verified within the prescribed timeline.

· Large or unusual financial transactions are picked up for additional scrutiny.

· Delays arising from internal or system-related processing at the tax department’s end.

A taxpayer’s job does not end just after filing the ITRs. “It is the taxpayers' duty to always keep their profile updated at the income tax e-filing website with a valid and active e-mail id and mobile number. So, the Department’s all related communications will be received​ promptly, and necessary action can be taken, if requested to do so on priority. Even for adjustment against past tax demands, the Assessing Office is duty-bound to inform the concerned taxpayer and hear their objections, if any, before proceeding to initiate the adjustment process,” said Prabhakar K S, Founder & CEO, Shree Tax Chambers.