Income Tax Refund Delay: Despite the multiple requests from tax professionals and individual taxpayers, the Income Tax Department did not extend the Income Tax Return (ITR) deadline for the Assessment Year 2024-25 beyond July 31. Many taxpayers haven’t received the tax refunds yet despite filing well in advance of the deadline.
However, the Income Tax Department typically issues refunds within a specific timeframe, and several factors can cause delays. It is important to understand that the Income Tax Department credits a tax refund only after processing your verified income tax return (ITR).
Many people may experience delays in receiving their refunds after filing ITR-2 or ITR-3 for the financial year 2023-24. So, if you are also facing delays in your income tax refunds, will you get an interest on delayed tax refunds?
How Much Time Does It Take To Receive Your ITR Refund?
As we all know the tax department won’t begin processing refunds until the taxpayer has e-verified the return. According to the tax department website, it takes four to five weeks for the refund to be credited to the account of the taxpayer.
However, if a refund is not received during this timeframe, the taxpayer must check for intimation regarding discrepancies in ITR or check email for any notification from the IT department regarding the refund.
Will You Get Interest On Delayed Tax Refunds?
Most of the time, the tax refunds get delayed. Taxpayers ask on the social media platform, “Will I get interest on my delayed tax refund?”
If an income tax return is filed by the due date, the taxpayer is entitled to interest at a rate of 0.5% per month or part of a month, starting from April 1, 2024, until the refund is issued. However, if there is a delay in filing, interest is calculated from the date the return is submitted until the refund is processed.
It’s important to note that no interest is paid by the Income Tax Department if the refund amount is less than 10% of the actual tax liability under section 143(1) or on regular assessment. Adding further, no interest will be given on refunds that are less than 10% of the assessed tax under section 143(1) or regular assessment.
Rate of Interest
Interest at 0.5% per month or part of the month (i.e. 6% per annum) is paid till the date of refund. No refund is payable if the Refund is less than 10% of the tax payable; similarly, if the refund amount is less than Rs 100, there will be no refund. For example, Mr. Anil has an income tax liability of Rs.60,000. Total Taxes paid by him, including TDS, Advance Tax and SAT, is Rs.80,000. The excess tax paid of Rs.20,000 (Rs.80.000 (minus) Rs.60,000) is claimed as a refund by Mr. Anil while filing his income tax return. Mr. Anil will receive a refund of Rs 20,000 along with interest. If the refund was received in the month of September, interest @ 0.5% per month for 6 months will be received (April to Sept).
Period of Interest
- If the return is filed on or before the due date u/s 139(1): Interest begins from 1 April of the assessment year till the date of grant of refund.
- If the return is filed after the due date u/s 139(1): Interest begins from the date of return filing to the date of grant of refund.
Taxability of Income Tax Refund
The Income tax refund is not regarded as income and does not attract any tax liability. It is already taken into consideration while filing the ITR, Therefore, it is not considered as income and is not chargeable to tax.
Taxability of Interest on Income Tax Refund
The interest on income tax refund is liable to tax under the head ‘Income from Other Sources’. The interest has to be included in the income tax return in the Financial Year in which the refund was received. Any TDS, if deducted on the interest on income tax refund should be claimed against the total tax liability
Frequently Asked Questions
What is interest on an income tax refund?
Interest on an income tax refund is the interest paid by the Income Tax Department to a taxpayer on the amount of tax refund due.
Under which section is the interest on income tax refund paid?
Interest on income tax refund is paid under Section 244A of the Income Tax Act, 1961.
How is the interest on income tax refund paid to the taxpayer?
The interest amount is credited to the taxpayer’s bank account along with the principal refund amount. It is shown separately in the refund order issued by the Income Tax Department.
Will I receive interest on interest if there is a delay in processing the interest component of the refund?
No, the Income Tax Act does not provide for the payment of interest on the interest amount due on the refund.