No Interest on Delayed Tax Refunds: Know the Rules Before Getting Disappointed

Income Tax Refund: Under Section 244A of the Income Tax Act, interest is paid at an annual rate of 6 percent on delayed refunds. However, in many cases, no interest is paid.

Income Tax Refund: Many taxpayers are waiting for their income tax refunds. Taxpayers expect interest if the refund is delayed. The Income Tax Act does provide for interest on delayed refunds, but this is not always the case. In many instances, taxpayers do not receive a single rupee of interest despite the delay in receiving their refund.

Rules for Paying Interest on Late Refunds

Under Section 244A of the Income Tax Act, interest is paid at an annual rate of 6 percent on delayed refunds. This is calculated from April 1st of the assessment year until the day the refund is credited. However, there are some situations where the taxpayer does not receive interest despite the delay in the refund.

Recently, refund processing has slowed down due to several reasons, such as incorrect bank details, unlinked Aadhaar and PAN cards, incorrect or fraudulent claims in the return, or incorrect deduction information. CBDT Chairman Ravi Agarwal has stated that the tax department is scrutinizing returns with fraudulent claims and incorrect deductions. This is causing delays in processing.

Why is Interest Not Paid?

CA (Dr.) Suresh Surana says that a delay in the refund alone does not automatically guarantee that interest will be credited. He says that although Section 244A of the Income Tax Act provides for interest on delayed refunds, taxpayers often do not receive interest despite the delay. The crucial factor is whether the delay in processing is due to the taxpayer's own actions. Dr. Surana says, "If the delay in processing or issuing the refund is due to the taxpayer, no interest is paid."

This is especially true when the return contains incomplete information or errors in the details provided. In such cases, the assessing officer requests additional details, and if the taxpayer responds late to the notice or queries, the delay is considered their own fault, and no interest is paid.

Another reason for not receiving interest:

When a refund is received from self-assessment tax under Section 140A, the rules regarding interest are stricter. Surana explains that if the refund amount is due to an overpayment of tax, no interest will be paid. This means that if a taxpayer voluntarily pays excess tax and later claims a refund, they will not receive interest on that excess amount. Additionally, if the refund amount is less than ₹100, no interest is paid.