Interest on Refund of Income Tax – Section 244A: Many a time, it so happens that while paying tax, a person’s paid tax is excess in comparison to the tax due on him/her. In such cases, the Income Tax department refunds the excess amount of tax to the taxpayer.
When the tax amount is paid in excess, the taxpayer is undoubtedly entitled to a refund by the tax department. The excess tax can be paid in the form of advance tax, tax deducted at source,
self-assessment tax, or payment of tax on regular assessment. If the tax amount is paid in excess in any of the cases mentioned, the taxpayer will get a refund. Section 235 to 245 of the Income Tax Act deals with the refund of the excess tax amount.
When the excess tax amount paid by the taxpayer is returned to him/her at a delayed time, he/she is entitled to interest on the excess tax amount. Here, in this article, we will discuss the interest on refund of income tax.
When Refund Arises?
Section 237 of the Income Tax Act states that, when a person satisfies the Assessing Officer that the amount of tax paid by him/her or on his/her behalf for any year has exceeded the amount of tax due, in such a case, the person shall be entitled to a refund.
Who Can Claim Refund?
In general, a person who satisfies the Assessing Officer that the amount paid by him/her is excess compared to the tax due can claim a refund for the same. But, there are specific provisions for special cases in income tax where the refund can be claimed by a person other than the payer. Section 238 of the income tax act reviews the provisions for special cases for the claim of the tax refund.
Section 238 of the income tax act states the following:
- When the income of one person is added or included in the total income of another person while assessing tax. Under the provisions of the act, the latter is entitled to claim a refund in respect of his clubbed income.
- If in case a person dies, is incapable, or is insolvent, and is unable to claim the amount of refund due to him/her. The refund in such cases can be claimed by his/her legal representative, trustee, or guardian.
Interest on Refund
When a taxpayer pays in excess, the Income-tax department is not able to process the refund on time due to some reasons. If the refund amount is not returned to the taxpayer on time, he/she is entitled to interest on the amount of refund. Section 244 of the income tax acts speaks of the interest due on a refund. The following are the provisions of interest on refund given under the income tax act:
- According to the income tax act, if the refund arises out of any tax deducted or collected at source or paid by way of advance tax. In such cases, the taxpayer is entitled to an interest of 0.5 percent per month or part of a month on the refund amount. The interest in such cases shall be given out from the 1st day of April of the assessment year until the refund amount is granted to the taxpayer. There is also a condition that states that the taxpayer must have filed the tax return before the due date to claim interest.
- If the refund arises out of the tax paid through self-assessment, in such a case, the taxpayer should be entitled to an interest of 0.5 percent per month or a part of the month on the tax amount. Here, the interest shall be calculated from the date of furnishing return or payment of tax, whichever is later, to the date on which refund is transferred to the taxpayer.
The income tax act also lays down specific provisions for the non-payment of interest on the refund amount. According to the Income-tax act, no interest shall be paid by the income tax department on the refund amount if the amount of refund is less than 10% of the tax amount due.