How to be eligible for Interest on Income Tax Refunds?

If the assessee submits the ITR on or before the due date, interest will be charged from April 1 of the Assessment Year until the day the refund is issued.

Many taxpayers who have received an income tax refund claim that they have not received any interest on the refund amount, despite the fact that refunds are eligible for interest. Tax experts, on the other hand, believe that while interest on tax refunds is possible, not all refunds are qualified for it. Let's look at when a taxpayer could not be eligible for interest on a refund.

When will you be able to get a refund?

An assessee is eligible for refunds if his tax burden in a given financial year is less than the actual tax paid by way of tax deducted at source (TDS), tax collected at source (TCS), advance tax, or self-assessment tax. This refund can be obtained through timely submission of an income tax return. After processing the ITR, the tax department offers a refund.

In addition to the refund, the I-T Department pays qualifying taxpayers interest. Starting with the first month of the assessment year (April), interest will be calculated at a rate of 0.5 percent for each month or part of month.

This refund, however, is only given if two requirements are met. First, the assessee must submit the ITR on or before the due date. Second, the refund amount must equal or exceed 10% of the actual tax due as determined by the regular or summary assessment.

For Example:

Two taxpayers Tom and Jerry already paid a tax of Rs 5 Lakhs each by advance tax source.

Tom after filling ITR was liable of Rs 4.80 lakhs of tax and will recieve a refund of Rs.20,000.

Jerry was liable of Rs 4.50 Lakhs of tax and should recieve a refund of Rs. 50,000.

So according to ITR dept. Tom will get his refund but without interest as 10% of 4.8 lakh is 48000 > 20000 .

Jerry will recieve refunds with interest of 0.5% of every month starting from 1st april to granted date by IT dept as 10% of 4.5 lakhs is 45000 < 50000.

If the refund amount exceeds 10% of the actual tax liability, interest of 0.5 percent per month will be paid from April 1 of the assessment year to the date on which the refund is issued, providing the ITR is filed by the due date.