Interest Payable to Assessee [Section 244A]

Section 244A governs the payment of interest on income tax refunds to assessees. Below is a detailed breakdown of its provisions, including rates, calculation methods, exceptions, and judicial interpretations:

1. Types of Refunds & Applicable Interest Rates

(A) Refunds from Advance Tax, TDS, or TCS [Section 244A(1)(a)]

• Applicable to: Excess payment of:
  • Advance tax
  • Tax Deducted at Source (TDS) under Section 199
  • Tax Collected at Source (TCS) under Section 206C
• Interest Rate: 5% per month(6% p.a.)
• Calculation Period:
  • From 1st April of the assessment year(e.g., 1-Apr-2025 for AY 2025-26)
  • To the date of refund grant.

(B) Refunds from Self-Assessment Tax [Section 244A(1)(b)]

• Applicable to: Excess payment under Section 140A(self-assessment).
• Interest Rate: 5% per month(6% p.a.)
• Calculation Period:
  • From the later of:
    • Date of filing ITR, or
    • Date of tax payment
  • To the date of refund grant.

(C) Other Refunds (e.g., Regular Assessment, Penalties)

• Interest Rate: 5% per month(6% p.a.)
• Calculation Period:
  • From the date of tax/penalty payment
  • To the date of refund grant.

2. Additional Interest for Delayed Appellate Refunds [Proviso to Section 244A]

If a refund arises from an appellate order (e.g., CIT(A), ITAT, High Court) and is delayed beyond the time limit under Section 153(5):

• Additional Interest: 3% p.a.(over and above the standard 6%)
• Period: From the expiry of Section 153(5)deadline to the actual refund date.

3. Exceptions to Interest Payment

• No interestif the refund amount is <10% of the total tax liability.
• No interestfor delays attributable to the assessee (e.g., incomplete documentation).

4. Key Judicial Interpretations

1. Self-Assessment Tax Eligibility:
   • Bombay High Court (in Stock Holding Corporation) ruled that interest is payable on self-assessment tax refunds under Section 244A(1)(b), rejecting the Revenue’s argument that such payments are “gratuitous”.
   • Contrast: Delhi High Court initially held no interest was payable, but this view is minority.
2. Interest on Interest:
   • Supreme Court (Gujarat Fluoro Chemicals): Clarified that no interest is payable on delayed interest refunds(i.e., no compounding).
3. Taxability of Interest:
   • For mercantile-system taxpayers, interest accrues yearlyand must be taxed annually (Andhra Pradesh HC).
   • Contrast: Kerala HC held it is taxable only in the year of receipt.

5. Procedural Compliance

• Automatic Grant: Interest must be paid simultaneously with the refund.
• Departmental Accountability: Failure to pay interest on time may attract penalties for officers.

Summary Table

For disputes, taxpayers can file grievances or seek writ remedies for undue withholding