Income Tax Refunds

Interest rates and procedural timelines can change. This article is for general information and does not constitute tax advice.

When It Arises, and How It’s Paid

Once a return is processed and verified, any refund due is issued automatically, credited directly to a bank account (no cheques anymore). That account has to be pre-validated on the e-filing portal and linked to the taxpayer’s PAN; an unvalidated or unlinked account is the single most common reason a refund shows as processed but never actually lands.

Interest on Delayed Refunds

Under old Section 244A, delayed refunds carry simple interest at 0.5% a month (6% annually), itself taxable as Income from Other Sources in the year received. No interest applies if the refund is less than 10% of the tax liability determined, or less than ₹100. Where the return was filed on time, interest runs from 1 April of the assessment year; where filed late, it runs only from the actual filing date.

Refund Adjustment Against an Outstanding Demand

Under old Section 245, the department can set off a refund against any outstanding demand from any prior year. Before doing this, it must send a written intimation and give the taxpayer an opportunity to respond, generally within 30 days; if there’s no response, the adjustment proceeds automatically. An old demand doesn’t expire on its own; it stays on record indefinitely until actually paid, corrected, or deleted.