Section 244 and Section 244A of Income Tax Act: Interest on Refunds
Sections 244 and 244A form part of Chapter XIX dealing with refunds under the Income-tax Act, 1961. Section 244 is a legacy provision for specified older assessment years, while Section 244A contains the principal rules for interest on refunds for assessment year 1989-90 and subsequent assessment years governed by the 1961 Act.
Meaning of interest on income-tax refund
When tax, tax deducted at source, tax collected at source, advance tax, self-assessment tax or another eligible payment results in a refund, the statute may require the Central Government to pay simple interest in addition to the refund. Section 244A specifies the rate, starting point and ending point for calculating that interest in different situations.
Section 244 - Interest on refund where no claim is needed
Section 244 applies to the older statutory regime. In substance, where a refund became due in pursuance of an order referred to in Section 240 and the Assessing Officer did not grant it within the prescribed three-month period, the Central Government was required to pay simple interest at 15 per cent per annum for the statutory period.
Section 244(1A) - Excess tax or penalty paid
Where an amount paid after 31 March 1975 pursuant to an assessment or penalty order was later found in appeal or another proceeding to exceed the tax or penalty legally payable, Section 244(1A) provided interest on the excess amount. Special rules applied where payment was made in instalments, and the provision prevented overlapping interest under sub-sections (1) and (1A).
Section 244(2) - Refund withheld
The provision also dealt with interest where a refund had been withheld under the then applicable Section 241 and was later determined to be due.
Section 244(3) - Limited present relevance
Section 244 does not apply to assessment year 1989-90 or later assessment years. Its importance today is therefore mainly historical and for matters governed by the older assessment-year regime.
Section 244A - Interest on refunds
Section 244A provides that where a refund becomes due to an assessee under the Income-tax Act, the assessee is, subject to the section, entitled to simple interest in addition to the refund. The ordinary statutory rate under Section 244A(1) is one-half per cent for every month or part of a month for the applicable period.
| Refund category | Interest period under Section 244A |
|---|---|
| TCS under Section 206C, advance tax or tax treated as paid under Section 199 | Generally from 1 April of the assessment year where the return is furnished on or before the due date under Section 139(1); otherwise from the date the return is furnished, up to the date the refund is granted. |
| Self-assessment tax under Section 140A | From the later of the date of furnishing the return or the date of payment of tax, up to the date the refund is granted. |
| Other eligible cases | From the relevant date or dates of payment of tax or penalty to the date the refund is granted, subject to the statutory explanation and exclusions. |
Section 244A(1)(a) - TDS, TCS and advance tax refunds
For a refund arising from tax collected at source under Section 206C, advance tax, or tax treated as paid under Section 199, interest is generally calculated at 0.5 per cent for every month or part of a month. If the return is filed on or before the due date under Section 139(1), the period ordinarily begins on 1 April of the assessment year. If the return is filed after that due date, the period ordinarily begins on the date of furnishing the return.
Refund following an application under Section 155(20)
Where a refund arises from an order passed by the Assessing Officer in consequence of an application under Section 155(20), the special proviso to Section 244A(1)(a) calculates interest at 0.5 per cent for every month or part of a month from the date of that application to the date on which the refund is granted.
Section 244A(1)(aa) - Self-assessment tax
Where the refund is out of tax paid under Section 140A, interest is calculated at 0.5 per cent for every month or part of a month from the later of the date of furnishing the return or the date of payment of tax, up to the date on which the refund is granted.
Ten per cent threshold
No interest under clause (a) or clause (aa) is payable where the amount of refund is less than 10 per cent of the tax determined under Section 143(1) or on regular assessment.
Section 244A(1)(b) - Other cases
In any other eligible case, interest is calculated at 0.5 per cent for every month or part of a month from the relevant date or dates of payment of tax or penalty to the date the refund is granted. For this clause, the statutory meaning of the date of payment is linked to the amount paid in excess of the demand specified in the notice under Section 156.
Section 244A(1A) - Additional interest for delay in giving effect to specified orders
Where a refund arises from giving effect to an order under Section 250, 254, 260, 262, 263 or 264, wholly or partly and otherwise than by making a fresh assessment or reassessment, additional interest may be payable at 3 per cent per annum. The period begins after expiry of the time allowed under Section 153(5) and ends when the refund is granted, subject to the statutory exclusion relating to a refund validly withheld under Section 245(2).
Section 244A(1B) - Refund to deductor
Where a refund becomes due to a deductor for an amount paid to the credit of the Central Government under Chapter XVII-B, the deductor may receive simple interest at 0.5 per cent for every month or part of a month for the period specified in Section 244A(1B), depending on whether the starting point is the prescribed refund claim or the relevant tax payment.
Section 244A(2) - Delay attributable to assessee or deductor
If the proceedings resulting in the refund are delayed for reasons attributable to the assessee or deductor, the attributable period is excluded while computing interest. A dispute about the period to be excluded is decided by the prescribed senior income-tax authority under the section.
Section 244A(3) - Increase or reduction of interest
If a later statutory order increases or reduces the amount on which interest was payable, the interest is correspondingly increased or reduced. Where excess interest becomes recoverable, the Assessing Officer may issue the prescribed demand, which is treated as a notice under Section 156.
Section 244A(4) - Assessment years covered
Section 244A applies to assessments for assessment year 1989-90 and subsequent assessment years governed by the Income-tax Act, 1961. The provision also contains a specific rule concerning assessment of fringe benefits.
Related provisions
- Section 139(1): prescribes the due-date framework for furnishing a return of income.
- Section 140A: deals with self-assessment and payment of self-assessment tax.
- Section 143(1): deals with processing of a return and determination of tax or refund through intimation.
- Section 156: provides for notice of demand where tax, interest, penalty, fine or another sum is payable pursuant to an order.
- Section 240: governs refund becoming due as a result of an order passed in appeal or other proceeding, subject to its statutory conditions.
- Section 245: contains rules concerning set-off and withholding of refunds in specified circumstances.
Official references
The Bharatiya Sakshya Adhiniyam, 2023 concerns the law of evidence and does not alter the statutory computation of interest on income-tax refunds under these provisions. References on this page are therefore confined to the applicable income-tax law.