Section 234D and Section 234E of Income Tax Act: Interest on Excess Refund and Fee for Default in Furnishing Statements

Section 234D of the Income-tax Act, 1961 deals with interest where a refund granted on processing of a return is later found to be wholly or partly excessive. Section 234E provides a statutory fee for delay in furnishing prescribed TDS or TCS statements. From 1 April 2026, the Income-tax Act, 2025 applies to Tax Year 2026-27 onward, with the corresponding current provisions contained in Sections 426 and 427.

Section 234D: Interest on Excess Refund

Under Section 234D of the Income-tax Act, 1961, where a refund has been granted under Section 143(1) and, on regular assessment, either no refund is found due or the refund already granted exceeds the amount actually refundable, the assessee becomes liable to interest on the whole refund or the excess portion, as applicable.

Rate and period of interest

The rate under Section 234D is simple interest at 0.5% for every month or part of a month. The period ordinarily runs from the date on which the refund was granted up to the date of regular assessment. If a later statutory order establishes that the refund was correctly allowed in whole or in part, the interest is reduced accordingly.

For purposes of this provision, an assessment made for the first time under the applicable reassessment provisions may be treated as a regular assessment in the circumstances stated in the section.

Section 426 of Income-tax Act, 2025: Current Excess Refund Provision

Section 426 is the current provision dealing with interest on excess refund. Where a refund granted under Section 270(1) is later found on regular assessment not to be due, or to exceed the amount properly refundable, simple interest is chargeable at 0.5% for every month or part of a month from the date of grant of refund to the date of regular assessment. The section also provides for reduction of interest where a subsequent statutory order holds that the refund was correctly allowed in whole or in part.

Section 234E: Fee for Default in Furnishing TDS or TCS Statements

Section 234E of the Income-tax Act, 1961 applies where a person fails to deliver or cause to be delivered a statement within the prescribed time under Section 200(3) or the proviso to Section 206C(3). The default generally concerns prescribed statements relating to tax deducted at source or tax collected at source.

Amount of fee under Section 234E

• The fee is Rs. 200 for every day during which the failure continues.
• The aggregate fee cannot exceed the amount of tax deductible or collectible, as applicable.
• The provision applies to covered TDS/TCS statements required to be delivered for tax deducted or collected on or after 1 July 2012.

Section 427 of Income-tax Act, 2025: Current Statement Default Fee

For the regime operating from 1 April 2026, Section 427 of the Income-tax Act, 2025, as amended, deals with fee for default in furnishing specified statements. For failure to deliver the statement prescribed under Section 397(3)(b) within time, the fee is Rs. 200 for every day of continuing failure, subject to the amount of tax deductible or collectible. The current provision also contains a separate fee rule for specified defaults concerning statements of financial transaction or reportable account, subject to the conditions and monetary limit stated in the section.

Practical Difference Between Interest and Fee

Section 234D or current Section 426 imposes interest because the taxpayer retained a refund that was later found to be wholly or partly excessive. Section 234E or current Section 427 imposes a fee for delay in furnishing specified statutory statements. The nature, triggering event and computation of the two liabilities are therefore different.

Official Sources

Tax provisions should be applied with reference to the relevant tax year or assessment year, amendments, rules, notifications and facts of the case.