Section 234D of the Income Tax Act, 1961, mandates that taxpayers repay excess refunds received during summary assessment (under Section 143(1)) if the refund is later reduced or negated during regular assessment (scrutiny under Section 143(3), reassessment under Section 147/153A, etc.). The taxpayer must also pay interest @ 0.5% per month on the excess amount from the refund date until the regular assessment date.
1. Key Provisions of Section 234D
- When Does Interest Apply?
Interest is levied if:
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- No refund was dueupon regular assessment, but one was granted earlier under Section 143(1).
- The refund amountgranted under Section 143(1) exceeds the correct refund determined in regular assessment.
- Rate & Period of Interest
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- Rate:5% per month (or part of a month).
- Period:From the date of refund issuance (under Section 143(1)) to the date of regular assessment.
- What Constitutes “Regular Assessment”?
Includes:
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- Scrutiny assessment (Section 143(3))
- Best judgment assessment (Section 144)
- Reassessment (Section 147)
- Search-related assessment (Section 153A).
2. Calculation of Interest (Rule 119A)
- Round Off Amount:
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- Ignore fractions of ₹100 (e.g., ₹5,660 → ₹5,600).
- Round Off Period:
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- Treat part of a month as a full month (e.g., 15 days = 1 month).
- Formula:
Interest = (Excess Refund) × 0.5% × No. of Months (rounded)
Example:
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- Excess refund: ₹8,490 (rounded to ₹8,400)
- Period: 5 months & 15 days → 6 months
- Interest: ₹8,400 × 0.5% × 6 = ₹252(rounded to ₹300).
3. Adjustments & Exceptions
- Reduction in Interest:If appellate authorities (CIT(A), ITAT, etc.) uphold the original refund, interest is adjusted.
- No Interest if:
- Refund was correctly allowed in regular assessment.
- The taxpayer voluntarily repays excess refund before demand
