Income Tax Act 2025: New Rules for Refunds from April 1—Interest, Eligibility and Key Sections Explained

Income Tax Act 2025: New Refund Rules to Apply from April 1—Here’s Everything You Need to Know

The Central Government is set to bring a significant legislative change in the country’s taxation framework. The Income Tax Act, 2025 will come into effect from April 1, 2026, replacing the long-standing Income Tax Act, 1961. While the government has simplified the language and structure to make the law easier to understand, experts note that the core rules, including those related to tax refunds, largely remain unchanged.

One of the most important aspects for taxpayers is understanding how refunds will be processed, who will be eligible, and what interest will be paid on delayed refunds. All these provisions have been clearly laid out in the new legislation.

Refund Provisions Covered Under Sections 431 to 438

The Income Tax Act, 2025 includes a dedicated set of sections—Section 431 to Section 438—that define the rules for tax refunds. These sections replace the earlier refund-related provisions under Sections 237 to 245 of the Income Tax Act, 1961.

Under these new sections, the law specifies:

• When a taxpayer becomes eligible for a refund

• How the refund amount will be calculated

• Timelines for refund issuance

• The rate of interest payable if the refund is delayed

These structured provisions ensure clarity and better understanding for taxpayers.

Refund Eligibility: When Can a Taxpayer Claim a Refund?

According to Section 431, a taxpayer is entitled to a refund only when the total tax paid exceeds the actual tax liability for that financial year. This excess amount can result from:

• TDS (Tax Deducted at Source)

• Advance Tax payments

• Self-Assessment Tax

The refund claim must be supported with proper documentation and accurate reporting in the return.

ITR Filing Is Mandatory to Claim Refund

As per Section 433, a refund claim must be submitted through a duly filed Income Tax Return (ITR). Without filing the return, taxpayers cannot request or receive any refund, even if extra tax has been paid. This ensures that the department has verified financial information before processing the refund.

Interest on Delayed Refunds: 0.5% Per Month

A major concern for taxpayers is the delay in receiving refunds. The new Act continues the same rule from the previous tax law: refunds delayed beyond the allowed processing period will earn interest at the rate of 0.5% per month, as specified in Section 437(1).

This means:

• Interest applies only when the refund is delayed

• The interest is calculated on the refundable amount

• The effective annual interest rate remains 6%, similar to the earlier Section 244A under the 1961 Act

Tax experts highlight that although the language has been simplified, no fundamental change has been made to the refund interest rules.

No Change in Interest Rate Compared to Old Law

The earlier tax law (Income Tax Act, 1961) also provided simple interest at 0.5% per month on delayed refunds. The new Act retains this rate, ensuring continuity for taxpayers. What has improved, however, is the clarity of explanations and structure in the new legislation, making it more user-friendly.

Simpler Language, Clearer Rules—But Essentials Remain the Same

While the government has redesigned the law with a simpler structure and more understandable language, the guiding principles of refund eligibility, interest payout, and timelines remain unchanged. The aim is to help taxpayers understand the law without requiring technical expertise.

With the new Income Tax Act, 2025 set to come into force from April 1, 2026, it is essential for taxpayers to familiarize themselves with the updated refund provisions to avoid confusion and ensure smoother compliance.