Section 244A of Income Tax Act

Section 244A of the Income Tax Act provides interest payments to taxpayers on the refund amount pending after filing the ITR. Most taxpayers who file an ITR may end up paying extra tax in the form of Tax Deducted at Source (TDS), Self-Assessment Tax (SAT), or Advance Tax (AT). If a taxpayer has paid extra tax, there is nothing to worry about, as the Income Tax Department allows such taxpayers to claim a tax refund. All the taxpayer has to do is file the ITR and claim the tax refund. However, the Income Tax Department may take some time to process the income tax refund as it cross-checks if the refund amount is correct and eligible. Under section 244A of the Income Tax Act, the Income Tax Department is liable to pay interest on the amount payable as a refund until it refunds the amount to the taxpayer.

If you are a taxpayer eligible for an income tax refund, you may be eligible for interest payments on the amount of your tax refund. This blog will help you understand the provisions of section 244A of the Income Tax Act and how it can increase your final refund amount through an interest payment.

What is section 244A of the Income Tax Act?

Section 244A of the Income Tax Act is a section included in the Income Tax Act 1961 that allows taxpayers with pending income tax refunds to get the final amount with interest. Under section 244A, taxpayers are liable to receive the final refund amount with interest if they have paid extra tax, which is below their actual tax liability. In most cases, taxpayers are liable for an income tax refund if they have paid the extra tax due in the form of Tax Deducted at Source (TDS), Self-Assessment Tax (SAT), or Advance Tax (AT). The provisions of section 244A of the Income Tax Act apply to every taxpayer, including individuals or corporate entities.

Also read: 234C of Income Tax Act

Interest on refunds

Many taxpayers in India end up paying extra tax, which is below their actual tax liability. The Income Tax Department, under section 244A, is liable to pay interest on the amount pending which will be paid as a tax refund to a taxpayer. The interest rate under section 244A is 6% per annum on the amount of pending tax refund. This comes to 0.5% simple interest per month. However, under section 244A of the Income Tax Act, interest payments are not liable if the tax refund amount is less than 10% of the amount payable as tax for the assessment year.

For example, If a taxpayer has paid Rs. 90,000 in taxes for an assessment year and is eligible for a refund of Rs. 7,500, no interest will be given on this refund. However, if the refund amount is Rs. 10,000 or more, the taxpayer will be entitled to interest on the refund at a rate of 0.5% per month or part of a month under section 244A of the Income Tax Act.

Also read: Income tax slab

Time limit for granting refunds

When it comes to income tax refunds, the responsibility lies with the Assessing Officers. If a taxpayer has a pending income tax refund, the AO is required to process it within one year, calculated from the end date of the financial year in which the taxpayer filed the return. In case of failure by the Assessing Officer to process and credit the income tax refund within the time limit of one year, the provisions of section 244A of the Income Tax Act apply, and the taxpayer is liable to receive interest on the pending tax refund amount. The rate of interest payable to the taxpayer in case of missing the time limit is 6% per annum, which comes to 0.5% per month or the part of the month.

Also read: 234B of Income Tax Act

Eligibility for interest on refund

One of the best features of section 244A of the Income Tax Act is that its provisions apply to all taxpayers, including individuals, corporate entities, Hindu Undivided Families (HUFs), or any other legitimate entity. In order for a taxpayer to be eligible for interest payments on the tax refund amount, the taxpayer must have paid extra tax in the form of TDS, SAT, or Advance Tax. Furthermore, the tax refund amount must be higher than 10% of the amount payable as tax for the assessment year to be eligible for interest payments on tax refunds under section 244A of the Income Tax Act.

Calculation of interest on refund

The interest rate applicable is 0.5% per month or part of a month. This rate is applied to the amount of the refund due from the side of the Income Tax Department. Under section 244A of the Income Tax Act, the interest is calculated from the date the refund was due until the date it is actually paid.

Suppose a taxpayer was entitled to a refund of Rs. 20,000, which was due on June 30 but was only issued on December 15. Interest would be calculated for the six months of July through December. Interest for this period would be 0.5% per month on Rs. 20,000, totalling 3% (0.5% × 6 months). Therefore, the interest amount would be Rs. 20,000 × 3% = Rs. 600.

Also read: Section 140A of Income Tax Act

Challenges faced by taxpayers in claiming interest on refund

Although section 244A of the Income Tax Act allows taxpayers to get interest on their pending tax refund amount, they face numerous challenges in the process. One of the major challenges is the delay in processing the refund by the Assessing Officer. Even if interest is due, obtaining it can be complicated if the refund is significantly delayed. Calculating the exact interest is highly complex, as it can be difficult to understand the exact period from which interest is to be calculated. Furthermore, it becomes overwhelming for taxpayers to maintain accurate records of their ITR, their refund claims, and the communication they have with the tax authorities.

However, the Income Tax Department has created a centralised processing system to address taxpayers' claims and expedite refund processing. Taxpayers can also use the pre-filled income tax return system to reduce the chance of any error in the calculation of interest.

Also read: 44AD of Income Tax Act

Conclusion

The Indian government requires every Indian citizen and entity to pay taxes on time, and if they have paid excess tax, they are liable for an income tax refund. However, if the tax authorities delay the refund above the given time limit, the taxpayer is entitled to receive an interest on the amount of the pending tax refund under section 244A of the Income Tax Act. The interest is calculated at 0.5% per month or part of a month from the date of the original refund claim until the date of the actual payment. Hence, if your tax refund is delayed, you can ensure that the final amount you receive has interest added to the amount based on the delay of the tax refund credit.

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