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Understand your income tax
In summary
Section 244A of the Income-tax Act, 1961 governed interest on eligible income-tax refunds. For tax years beginning on or after 1 April 2026, Section 437 of the Income-tax Act, 2025 provides the corresponding rules.
- The standard interest rate remains 0.5% for every month or part of a month (equivalent to 6% per annum).
- Interest applies to eligible refunds arising from TDS, TCS, advance tax, self-assessment tax and other excess tax payments.
- The 10% threshold applies to specified refund categories, not every refund.
- An additional interest of 3% per annum applies to certain refunds arising from delayed implementation of specified orders.
- Any delay attributable to the taxpayer or deductor is excluded from the interest calculation.
- Section 536 contains transition provisions for tax years beginning before 1 April 2026.
The applicable provision depends on the tax year and refund circumstances. Check the refund source, return filing date and assessment status before estimating the interest payable.
Which provision applies after Section 244A of the Income Tax Act?
Here is how the two provisions relate:
| Particular | Earlier provision | Current provision |
|---|---|---|
| Legislation | Income-tax Act, 1961 | Income-tax Act, 2025 |
| Section | Section 244A | Section 437 |
| Subject | Interest on refunds | Interest on refunds |
| Standard interest rate | 0.5% per month or part thereof | 0.5% per month or part thereof |
The basic interest rate has remained the same. However, the new Act presents the refund-interest rules in a reorganised structure.
What happens to refunds relating to earlier tax years?
The repeal of the Income-tax Act, 1961 does not mean that all earlier tax matters automatically move to the new Act.
Section 536 of the Income-tax Act, 2025 contains transitional provisions. The Finance Act, 2026 also amended Section 536(2)(g) to clarify how refund interest is treated during the transition.
- Proceedings relating to tax years beginning before 1 April 2026 generally continue under the Income Tax Act, 1961.
- Where a refund for an earlier tax year becomes due on or after 1 April 2026, the old Act's refund-interest provisions continue to apply for the relevant period.
- However, the interest rate is aligned with the rate under the corresponding provision of the new Act.
Therefore, Section 244A remains relevant for certain earlier-year refund matters, even though the 1961 Act has been repealed.
What did Section 244A of the Income Tax Act, 1961 provide?
The provision covered excess payments through different tax sources, including:
- Tax Deducted at Source (TDS).
- Tax Collected at Source (TCS).
- Advance tax.
- Self-assessment tax.
- Other excess tax or penalty payments covered by the provision.
The interest was intended to compensate eligible taxpayers for the period during which the government held the excess amount.
Under the earlier provision, the standard interest rate was 0.5% for every month or part of a month. The period for calculating interest depended on the source of the refund and the date on which the Income Tax Return (ITR) was filed.
This provision established the earlier framework for interest on income-tax refunds. Its corresponding provision is now Section 437 of the Income Tax Act, 2025, subject to the transition rules explained above.
What are the key provisions under Section 437 of the Income-tax Act, 2025?
Section 437 of the Income-tax Act, 2025 provides for interest on eligible income-tax refunds at 0.5% for every month or part of a month. It explains when interest starts, which refunds qualify and when the interest period can be reduced.
The main provisions include:
- Interest on eligible refunds: You can receive simple interest in addition to the refund amount when the statutory conditions are met.
- Different interest calculation periods: The starting date depends on whether the refund arises from TDS, TCS, advance tax, self-assessment tax or another excess payment.
- Minimum refund threshold: Interest is not payable on certain refunds when the amount is less than 10% of the tax determined under the applicable assessment.
- Additional interest: Specified refunds arising from delayed implementation of appellate or other eligible orders can qualify for additional interest of 3% per annum.
- Exclusion of attributable delays: Any delay caused by the taxpayer or deductor is excluded from the interest calculation.
- Interest adjustment: If a subsequent assessment or order changes the refund amount, the interest payable can also be revised.
These provisions ensure that interest is calculated according to the reason for the refund and the applicable statutory conditions.
Which important terms should you understand under these IT act sections?
| Tax term | Simple explanation |
|---|---|
| Assessee | A person who is liable to pay tax or another amount under the Income-tax Act, or against whom tax proceedings are taken. |
| Deductor | A person or entity required to deduct tax at source before making specified payments. |
| Tax Deducted at Source (TDS) | Tax deducted by the payer from specified payments, such as salary or interest, and deposited with the government. |
| Tax Collected at Source (TCS) | Tax collected by a seller or another specified person on certain transactions and deposited with the government. |
| Advance tax | Income tax paid in instalments during the tax year based on your estimated tax liability. |
| Self-assessment tax | Tax you pay after calculating your final tax liability and adjusting eligible tax credits, such as TDS and advance tax. |
For example, if your employer deducts more TDS than your final income-tax liability, you may become eligible for a refund after your return is processed.
Similarly, excess advance tax or self-assessment tax can result in a refund. Interest on the refund depends on the applicable provision and calculation period.
How much interest can you receive on an income-tax refund?
The interest calculation depends on the source of the refund.
What is the interest rate for different types of refunds?
| Refund source | Interest calculation period |
|---|---|
| TDS, TCS or advance tax | From 1 April following the tax year if you file your return by the applicable due date. Otherwise, from the return filing date. |
| Self-assessment tax | From the later of the return filing date or the tax payment date. |
| Other excess tax or penalty payments | From the date or dates on which the excess payment was made until the refund is granted. |
| Certain deductor refunds | From the date of filing the refund claim or the applicable tax payment date in specified cases. |
The applicable period is prescribed under Section 437. Any delay attributable to the taxpayer or deductor is excluded.
How do you calculate interest on a tax refund?
You can calculate the basic interest on an eligible refund using this formula:
Interest = Refund amount × 0.5% × Number of months or part thereof
For example, assume you are eligible for a refund of Rs. 20,000 and the applicable interest period is six months.
| Particular | Amount |
|---|---|
| Eligible refund | Rs. 20,000 |
| Monthly interest rate | 0.5% |
| Interest period | 6 months |
| Total interest | Rs. 600 |
Calculation: Rs. 20,000 × 0.5% × 6 = Rs. 600.
Therefore, you receive Rs. 20,600, comprising the Rs. 20,000 refund and Rs. 600 interest.
This example assumes that the refund qualifies for interest, the full six-month period is chargeable and no statutory exclusion applies. A part of a month is also counted as a month under the provision.
When can interest on an income-tax refund be reduced or withheld?
Here are the circumstances you should understand:
- Delay caused by you: If refund proceedings are delayed because of reasons attributable to you, the corresponding period is excluded from interest calculation.
- Delay caused by the deductor: If the delay is attributable to the deductor, that period is excluded from the applicable interest calculation.
- Refund below the prescribed threshold: Interest is not payable where the refund falls below the 10% threshold for the specified refund categories.
- Refund withheld during proceedings: Where a refund is withheld under the applicable statutory provisions, the relevant withholding period is excluded when calculating additional interest in eligible cases.
- Change in refund amount: If a subsequent order increases or reduces the refund amount, the interest payable can be adjusted accordingly.
If interest already paid to you is reduced because of a subsequent order, the Assessing Officer can issue a demand for the excess interest paid.
This ensures that the interest amount reflects the refund actually due under the applicable tax provisions.
Is there a one-year deadline for receiving an income-tax refund?
Instead, the interest period starts from different dates depending on the source of your refund.
For example:
- If your refund arises from advance tax and you file your ITR within the prescribed due date, interest is calculated from 1 April following the tax year.
- If you file your return after the due date, the interest period generally begins from the return filing date.
- If your refund arises from self-assessment tax, interest starts from the later of the tax payment date or return filing date.
A separate additional-interest provision applies to certain refunds arising from the delayed implementation of specified appellate and other orders. This is linked to the statutory time limit under Section 286, not a blanket one-year deadline.
What are the common challenges in claiming interest on income-tax refunds?
Some common issues include:
- Delay in refund processing: Your refund may take time to process because the Income Tax Department needs to verify your return and tax details.
- Incorrect tax credits: Differences between the TDS or TCS details in your return and the information reported by deductors or collectors can affect refund processing.
- Incorrect interest calculation: The applicable start date depends on the source of the refund and the date you filed your return.
- Understanding eligibility: The 10% threshold and exclusions for delays attributable to you can make interest calculations difficult.
- Changes after assessment: Subsequent assessment, rectification or appellate orders can increase or reduce the refund and associated interest.
What can you do if your refund or interest appears incorrect?
Start by checking the refund amount and interest details in your income-tax account.
- Review the refund status and the processing details of your ITR.
- Compare the TDS and TCS credits with the relevant tax statements.
- Check the refund calculation date and the source of the excess payment.
- Verify whether the 10% threshold or any period of attributable delay applies.
- Raise a grievance with the Income Tax Department if the refund or interest calculation appears incorrect.
Keep your ITR acknowledgement, tax payment challans and relevant tax statements available while checking your claim.
Does Section 437 provide additional interest for delayed refunds?
This additional interest is available over and above the standard interest payable under Section 437(1).
However, it does not apply to every delayed refund. The provision covers refunds resulting from specified orders under Sections 359, 363, 365(10), 368, 377 or 378, where the refund is granted without making a fresh assessment or reassessment.
The additional interest is calculated from the day after the prescribed time limit under Section 286 expires until the refund is granted. Certain periods when the refund is withheld during pending proceedings are excluded.
Important distinction: The additional 3% per annum is not a general interest rate of 0.75% per month. The standard rate remains 0.5% per month, with additional interest available only in the specified circumstances.
Conclusion
The standard interest rate remains 0.5% per month or part thereof, with an additional 3% annual interest available in specified cases involving delayed implementation of orders. The applicable calculation period and eligibility conditions depend on the refund source and assessment circumstances.
Understanding these provisions can help you check whether the interest credited with your refund is correct. Always consider the transition rules under Section 536 when dealing with refunds relating to earlier tax years.
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Frequently asked questions
Know More about Section 244A
What is the interest under Section 244A?
Section 244A of the Income Tax Act, 1961 provides for interest on eligible income tax refunds. The general rate is 0.5% for every month or part of a month. The starting date depends on the type of tax paid and the relevant filing conditions. Certain refunds are subject to a 10% threshold, and taxpayer or deductor delays may reduce the interest period.
What is the difference between Sections 234D and 244A?
Section 244A deals with interest payable to a taxpayer on eligible income tax refunds. Section 234D deals with interest payable by a taxpayer when a refund issued under Section 143(1) is later found to be excessive on regular assessment. The two provisions address different situations and should not be treated as interchangeable.
How is interest calculated under Section 244A?
Interest is generally calculated at 0.5% per month or part of a month on the eligible refund amount. The calculation begins on the date specified for the relevant refund category and ends when the refund is granted. For example, Rs. 20,000 qualifying for six months would earn an estimated Rs. 600, assuming no exclusions or adjustments apply.
What is the applicability of Section 244A?
Section 244A applies to eligible refunds governed by the Income Tax Act, 1961. It covers different refund situations, including certain refunds arising from TDS, TCS, advance tax, self assessment tax and excess payments against demands. The rate, calculation period and eligibility conditions depend on the type of refund. Section 437 of the Income Tax Act, 2025 provides the corresponding rules for the new legislation from 1 April 2026.
What is Section 244A of the Income Tax Act?
Section 244A is the provision for interest on refunds under the Income Tax Act, 1961. It generally provides simple interest at 0.5% per month or part of a month on eligible refunds. It also specifies how the interest period is calculated and when a delay attributable to the taxpayer or deductor may be excluded. Section 437 of the Income Tax Act, 2025 is the corresponding provision under the new legislation.
What interest rate applies to a refund from a revised return?
The applicable rate is generally 0.5% per month or part of a month where the refund qualifies for interest under the relevant provision. However, filing a revised return does not automatically mean that interest starts from the original return filing date. The starting date depends on the type of refund, the relevant payment dates and the applicable statutory conditions.
Who is eligible for interest on a refund under Section 244A?
You may qualify for interest if an income tax refund is due to you and the relevant conditions under Section 244A are met. The tax payment type, refund amount and calculation period matter. For certain refunds, the amount must not be less than 10% of the tax determined. Delays attributable to you or the deductor may also be excluded from the interest period.
What is the rate of interest payable under Section 244A?
The general rate under Section 244A is 0.5% for every month or part of a month. This is equivalent to 6% per year when expressed as a simple annual rate. The amount payable depends on the eligible refund and qualifying period. Additional interest may apply in specific circumstances under separate provisions, so the general rate should not be applied to every case without checking the law.
From which date is refund interest calculated?
The starting date depends on the refund category. For eligible advance tax and TCS refunds, interest generally starts on 1 April of the assessment year if the return is filed by the due date. If the return is late, the period generally starts from the filing date. For self assessment tax refunds, it generally starts from the later of the return filing date or tax payment date.
How much interest is applicable on TDS refunds under Section 244A?
Section 244A does not establish a single one year waiting period that applies to every refund before interest begins. Instead, it defines the interest calculation period according to the type of tax payment and the relevant statutory conditions. Interest may therefore accrue before a full year has passed. The applicable starting date and any excluded delay must be checked for the specific refund.
How much interest applies to a TDS refund under Section 244A?
A TDS refund may qualify for interest under Section 244A, generally at 0.5% per month or part of a month. The exact calculation depends on the tax credit, the applicable assessment and return filing dates, and the refund conditions. The 10% threshold should not be applied without checking the specific legal category and the tax amount used for comparison.
How can you claim a refund if you have paid excess tax?
You should file the relevant income tax return, report your income and eligible tax credits accurately, and check that your TDS, TCS and advance tax records match the available information. If the return establishes that excess tax was paid, the refund can be processed under the applicable rules. Review the refund status and any adjustment intimation to understand the amount granted and any interest credited.
What is the role of Form 30 in claiming a TDS refund?
Form 30 was used under the Income Tax Act, 1961 for certain refund claims where tax had been paid or deducted in excess and the claim was made outside the ordinary return process. It is not a universal requirement for every TDS refund. The appropriate procedure depends on the circumstances and the rules applicable to the relevant tax year. Check the current official guidance before filing a separate refund application.
How is an income tax refund processed and paid?
The income tax department processes the return and checks the reported income, tax payments, credits and refund calculation. It may adjust the refund against outstanding tax dues where permitted by law, after following the applicable procedure. Once the refund is approved, the amount is issued through the registered refund payment method. Any interest depends on the relevant statutory conditions and qualifying period.
