Interest on Refund of Income Tax – Section 244A

Where any refund is payable to the assessee, the assessee is entitled to receive interest along with the refund as per the following provisions-

  1. When refund is of any advance tax paid or TDS or TCS – The interest is payable at the rate of 0.5 percent per month or part of month from 1st April of Assessment year to the date of grant of refund.
    No interest is payable if the excess payment is less than 10% of the tax determined on regular assessment or under section 143(1).
  2. When refund is of tax other than advance tax paid or TDS or TCS the interest is payable at the rate of 0.5 percent per month or part of month from date of payment of tax or penalty to the date of grant of refund.

If the proceedings resulting in the refund are delayed for reasons attributable to the assessee, whether wholly or in part, the period of the delay so attributable to him shall be excluded from the period for which interest is payable, and where any question arises as to the period to be excluded, it shall be decided by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner whose decision thereon shall be final.

Vide Instruction no. 2/2007, dated march 28,2007, the board has reminded all Assessing officers that while granting refund to the assessees, care should be taken to ensure that any interest payable under section 244A on the amount of refund due should be granted simultaneously with the grant of refund and there should in no case any omission or delay in the grant of such interest. Failure to do so will be viewed adversely by the board and the officer concerned will be held personally accountable, inviting appropriate action from the board. Read more about it

Interest on refund of income tax received by a person is taxable in his hands under the head Income from other sources.

Also Read – Interest payable by Assessee on Late Payment/Late Return Filing

Case Law

Refund of excess self assessment tax paid by assessee would not be eligible for interest under section 244A
The court concluded that there cannot be a general rule that whenever a refund of income tax paid in excess is made the revenue must necessarily pay interest on refunded amount. The letter and spirit of the law on the subject is that the party which committed the error in proper calculation must bear the burden. If the excess amount is paid due to erroneous assessment by the Revenue, then payment of interest is to be made. If the assessee is to be blamed for miscalculation or for delay the revenue does not owe any interest even if excess amount is liable to be refunded. [Commissioner of Income-tax vs. Engineers India ltd. Feb 26/2015 (Del)]

Assessee deducted tax at source mistakenly under section 194A though no tax is required to be deducted. On assessee’s request the department granted refund of amount so deducted. The court held that on such refund interest was not available under section 244A as assessee was not liable to deduct TDS and he did so on its own erroneous impression. Universal Cables Ltd. v. CIT (2010 MP)

Prateek Agarwal

Prateek Agarwal

I am Practicing Chartered Accountant from Jaipur and in practice for more than 9 years. I writes mainly for GST and Finance.

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