Learn how interest on income tax refund is calculated under Section 244A of the Income Tax Act, 1961. Find out if you’re eligible and how much interest you could earn on delayed refunds.
Delayed tax refunds are a common concern for Indian taxpayers. Fortunately, the Income Tax Act’s Section 244A ensures you earn interest on ITR refund if there's an undue delay by the department. Whether your excess tax payment is via TDS, advance tax, or self-assessment tax, this provision guarantees fair compensation for your money held back.
Understanding how this interest is calculated can help you know your financial rights and manage expectations better during the refund process.
Section 244A of the Income Tax Act, 1961 ensures taxpayers earn interest on delayed refunds for excess tax payments. It mandates the payment of simple interest when a refund is due to a taxpayer owing to excess tax paid, including TDS, advance tax, or self‑assessment tax. The interest starts accruing either from 1st April of the relevant assessment year (if the ITR is filed on time) or from the date of actual filing.
Purpose of Section 244A
The purpose is to compensate taxpayers for the delay in receiving their income tax refund beyond the statutory timeframe. This ensures fairness and encourages timely and accurate tax compliance. By providing interest on income tax refund, the law rewards taxpayers for their due diligence in overpaying taxes when required.
Scope of Section 244A
The scope is broad, covering all taxpayers—individuals, HUFs, companies—eligible for refunds exceeding 10% of total tax liability.
Refunds on TDS, TCS or Advance Tax: 0.5% per month (6% p.a.) from 1st April or filing date, up to refund date.
Self‑Assessment Tax: Higher rate of 1.5% per month from payment date to refund issuance.
Other excess payments: 1.2% per month.
Note: Interest is not payable if delays arise from taxpayer or deductor faults or if the refund is less than 10% of the tax determined.
By establishing clear rules for interest under Section 244A, this provision strengthens taxpayer rights and builds confidence in the fairness of the tax system.
An income tax refund arises when a taxpayer has paid more tax than owed, including TDS, advance tax, or self-assessment. Section 237 allows you to claim this excess via ITR, but the refund isn't final until verified by the Income Tax Department.
Meanwhile, interest on income tax refund under Section 244A compensates for processing delays. This added interest bolsters taxpayer confidence and ensures fairness.
What is the Rate of Interest
Taxpayers receive interest at 0.5% per month, which is 6% per annum, on their approved refund under Section 244A.
If the refund is less than 10% of the total tax payable or below ₹100, no interest is provided.
What is the Period of Interest
Returns Filed on Time: If ITR is filed on or before the due date, interest accrues from 1 April of the assessment year until the refund is issued.
Returns Filed Late: For late filings, interest starts from the date of filing until refund payment.
How is the Refund Taxed
The refund principal itself is not taxable, as it represents excess tax already paid.
The interest component is taxable as ‘Income from Other Sources’ and must be included in the ITR of the year it is received.
Any TDS deducted can be claimed against total tax liability.
Example
Suppose Priya had a tax liability of ₹1,00,000 for FY 2024–25, but she paid ₹1,30,000 via TDS and advance tax. She files her ITR by 31st July 2025 and receives the refund in January 2026.
Refund amount: ₹30,000
Interest period: 1st April 2024 to January 2025 = 10 months
Interest at 0.5% per month: ₹30,000 × 0.5% × 10 = ₹1,500
She receives a total of ₹31,500, as income tax refund. Out of this, ₹1,500 is taxable as “Income from Other Sources” in her ITR for FY 2024–25. Moreover, any TDS deducted on this interest can be adjusted when she files her return.
The Income Tax Department has a clear timeline for issuing refunds under Section 244A.
Refunds should be processed within one year from the end of the financial year in which the tax return was filed.
Once the ITR is filed on time, the time for interest on income tax refund starts from 1st April of the relevant assessment year.
In this way, prompt refund processing helps builds taxpayer confidence and promotes administrative efficiency.
To claim interest on ITR refund, taxpayers must satisfy several criteria under Section 244A:
Eligible assessees include individuals, HUFs, firms, and companies who paid excess tax via TDS, advance tax, or self-payments.
The excess refund must exceed 10% of total tax liability, or at least ₹100.
ITR must be filed on or before the due date, or within an extended deadline.
These rules ensure interest is awarded fairly to compliant taxpayers.
Interest on income tax refund under Section 244A is not always payable:
No interest is payable if the refund is below 10% of the total tax liability or less than ₹100.
Periods when delays arise due to taxpayer or deductor fault are excluded from interest calculations.
In cases of voluntary self-assessment tax (without demand), interest may also not apply unless the excess was due to official error.
These conditions ensure interest is granted only when justified and appropriate.
Reporting your interest on income tax refund correctly ensures full compliance under Section 244A.
Steps to Claim a Refund
File your ITR and check ‘Refund and interest received’ in the Income from Other Sources section.
Enter the interest amount you received in the relevant financial year.
Attach TDS certificate if any TDS was deducted. Use data from Form 26AS and Form 16A to cross‑verify.
Submit your return through the Income Tax Department's e-filing portal. E-verify the return to initiate processing.
The department will process the return and determine the refund amount along with any applicable interest.
Methods of Refund
The refund and interest are credited directly to your pre-validated bank account.
You’ll receive a refund order from CPC specifying breakup of principal and interest.
Ensure accuracy to prevent delays or queries from the tax department.
Despite a smooth process, taxpayers may face hurdles when claiming refunds:
Risk scrutiny: High refund claims trigger RMS review, causing delays.
Portal issues: e‑filing portal errors or missing data (e.g. TDS not reflected in Form 26AS) can stall refund credit.
Bank account mismatch: Incorrect or unvalidated bank details may lead to refund rejections.
Being proactive by verifying information, updating accounts, and responding swiftly to notices can avert these challenges.
Follow these tips to ensure a faster, hassle-free refund:
Validate bank info: Confirm your account is pre-validated and linked in the e-filing portal before filing ITR.
Cross-check data: Verify Form 26AS, TDS certificates, and income entries before submission to avoid mismatches.
File timely: Submit ITR within due dates or extended deadlines to start interest accrual early under Section 244A.
Monitor refund status: Regularly track refund on the CPC portal or via SMS alerts to address any issues early.
Adhering to these steps helps claim not only your refund but also ensures you receive interest on income tax refund without unnecessary delays.
Understanding Section 244A of the Income Tax Act empowers taxpayers to claim both a refund and interest on income tax refund when excess tax has been paid. By filing promptly, verifying details, and tracking the process, individuals can ensure they are fairly compensated and stay compliant. A well-planned refund process builds financial discipline and enhances trust in the tax system.
FAQs
Why is an interest amount paid in addition to the refund?
Taxes directly impact the budget the government utilises for the betterment of the country, and hence, the additional tax amount will be refunded with an interest under Section 244A of the Income Tax Act. This is a lot like a fixed deposit. For every month that the deductor holds the funds, an interest amount is paid up to a certain rate.
Under which section is the interest on income tax refund paid?
Interest on an income tax refund is paid under Section 244A of the Income Tax Act, 1961. It mandates simple interest at 0.5% per month on any refund due.
What is the rate of interest on income tax refund under section 244A?
Under Section 244A, the rate is 0.5% per month (simple interest), equivalent to 6% per annum, applied pro rata for the refund period.
How will I get my refund?
You can receive your refund in the form of a bank transfer made directly to your primary bank account as reported or furnished during your regular ITR filings, or a cheque addressed to the primary bank account is issued and sent via speed post.
How can I apply for a refund?
You may apply for a refund by filing Form 30 as an appeal for your refund claim case to be investigated. This initiates a process of confirmation and verification which later decides whether or not your case is eligible for a refund.
What is the time limit for granting refunds under section 244A?
Refunds must be processed within one year from the end of the financial year in which the return was filed. Interest is paid up to the date the refund is issued.
How much interest will I get along with my refund for paying extra TDS?
Extra taxes paid through TDS will be given 0.5%/month of interest along with the refund according to Section 244A of the Income Tax Act. This interest on TDS refund will be calculated for every month between your tax-paying date and refund date.
How is the interest on income tax refund paid to the taxpayer?
The interest is credited along with the refund amount to the taxpayer’s pre-validated bank account. The refund order from the CPC specifies the split between principal and interest.
Will I receive more interest if there is a delay in processing the interest on the refund?
No, interest on interest (compound interest) is not payable. Only the statutory simple interest at 0.5% per month is provided under Section 244A.
Does Section 244A apply to NRIs?
Yes, Section 244A is applicable to non-resident Indians as well.
From which date is the interest on refund calculated?
If the ITR is filed on or before the due date, interest starts from 1 April of the assessment year. For late filers, it begins from the date of filing the return.
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