Your Delayed Tax Refund Could Be Earning You Money; Know How 

The September 16 ITR filing due dates passed almost two months ago. Although many taxpayers have received their refunds, some filers are still monitoring their bank apps and the income tax portal, wondering whether and when the money will arrive.

The taxpayers in line have one big question: Will the government pay interest on late tax refunds, and if so, how much?

For better understanding, India today spoke to CS (Dr) Suresh Surana, who breaks down the compensation rules when refunds are delayed and how much interest the taxpayer can expect.

Understanding the Interest the Government Pays on Delayed Refunds

As per Suresh Surana, the interest payable on late refunds is clearly prescribed under the law.” Under Section 244A of the Income Tax Act,1961, where refunds of any amount become due to the assessee, he shall be entitled to receive simple interest at the rate of 0.5% for every month or part of the month,” he explains.

If the tax authorities delay your refund, you could earn interest at 6%  per annum, calculated monthly, on a simple interest basis. Unlike compound interest, this interest is only applied to the principal amount and does not accumulate on prior interest.

How Simple Interest Works (Not Compound)

Surana illustrates this with a simple example: ‘If a taxpayer is owed a refund of Rs 20,000 and it is delayed by three months, the interest earned would be Rs 20,000 × 0.5% × 3 = Rs 300.’This shows that while interest does accrue, it is relatively modest and directly proportional to the length of the delay.

When You Might Not Receive Interest Despite a Delay

Not all delayed refunds earn interest — it depends on who caused the delay. If it’s due to the taxpayer, such as providing incomplete information or responding late to notices, no interest is payable.

Interest is also not granted on self-assessment tax refunds under Section 140A if the refund arises solely from excess tax paid, or if the refund amount is below Rs. 100. The CBDT has reinforced rules allowing the CPC in Bengaluru to correct refund errors under Section 154 and adjust refunds against outstanding demands.

Who Is Eligible?

The provision applies to everyone — salaried individuals, freelancers, business owners, HUFs, and companies. As long as excess tax is paid via TDS, advance tax, or self-assessment, and the delay isn’t your fault, you qualify.

Why Do Refunds Get Delayed?

Common reasons include mismatches in tax return details versus government records (Form 26AS, AIS, TIS), unvalidated bank accounts, PAN not linked to Aadhaar, pending scrutiny, outstanding tax demands, or technical delays during peak filing periods.

What You Can Do

Check your refund status on the income tax e-filing portal. Ensure all tax credits are reflected and your bank account is validated. For bank-related failures, request a ‘Refund Re-issue.’ For missing interest or incorrect amounts, file an online rectification under Section 154, or raise a complaint on e-Nivaran or contact the CPC in Bengaluru.

A delayed refund can be frustrating, but the law ensures compensation if the delay is the government’s fault. While interest isn’t large, it ensures the authorities pay a price for holding your money.

Conclusion

Delayed tax refunds can test a taxpayer’s patience, but the law safeguards your rights. Interest is payable if the delay is the government’s responsibility. Simple interest is calculated on the refund amount until it is credited. Staying proactive by tracking your refund and correcting discrepancies can ensure you receive what you are entitled to.