Why you may not get interest on delayed IT refunds
What's the story
The wait for an income tax refund in India can be quite frustrating. The situation gets even more complicated when taxpayers expect interest on the delayed amount. However, the Income Tax Act only provides for interest on delayed refunds under certain conditions. The interest is paid at 6% per annum under Section 244A of the Income Tax Act, starting from April 1 of the assessment year until the refund is credited.
Processing challenges
Delays in refund processing: A closer look
The delay in refund processing is mainly due to compliance checks and data-related issues. These include incorrect bank details, Aadhaar-PAN linking errors, and wrong claims made in returns. Central Board of Direct Taxes (CBDT) Chairman Ravi Agrawal recently said that the tax department is closely examining cases of wrongful deductions and incorrect claims. These additional checks are necessary but have been lengthening the processing time for refunds.
Interest exceptions
When interest is not paid on delayed refunds
CA (Dr) Suresh Surana has clarified that interest isn't automatically granted just because a refund is delayed. He said there are specific circumstances where taxpayers are not entitled to such interest despite a delay. The main factor here is whether the delay was caused by the taxpayer themselves, like when returns contain incomplete or incorrect information, or when extra details are requested by the Assessing Officer.
Refund regulations
Stricter rules for self-assessment tax refunds
The rules are stricter for refunds arising from self-assessment tax paid under Section 140A. Surana said no interest is granted on such refunds if the refund amount comes exclusively from excess payment of such tax. This means if a taxpayer voluntarily paid more tax than necessary and later claimed a refund, they may not get interest on that excess amount.
Notification impact
CBDT's notification and refund adjustments
A recent CBDT notification has enhanced the department's ability to rectify refund-related issues. Surana explained that "CBDT Notification No. [correct notification number] reinforces the framework for rectification and computation of interest under Section 244A." The notification empowers the Centralized Processing Centre (CPC) in Bengaluru to correct mistakes under Section 154 and issue demand notices under Section 156. Consequently, refunds may sometimes be adjusted against outstanding tax demands, which could reduce or delay the final payout.
Exceeding timelines
Why refunds exceed 90 days
Surana said several factors contribute to refunds exceeding the 90-day mark. The most common reason is data mismatch or inconsistency, like discrepancies between income or TDS reported in the return and those reflected in Form 26AS, AIS or TIS. Refunds can also get delayed if a return is selected for scrutiny/verification by the CPC or local Assessing Officer.
Taxpayer advice
Tips to avoid delays in tax refunds
To avoid any delays and loss of interest, taxpayers must ensure their returns are accurate, bank details are correct and pre-validated, the Aadhaar is linked with PAN, and any notices from the IT department are answered promptly. Interest on delayed refunds is meant as compensation, but applies only when the delay is clearly on the tax department's side.