Income Tax Refund Delays: Understanding Potential Interest Owed Due to Slow Payouts from Error Checks
Many taxpayers are experiencing delays in receiving their income tax refunds, even after filing their returns weeks or months ago. The Central Board of Direct Taxes (CBDT) has attributed these holdups to increased scrutiny of questionable deduction claims. CBDT Chairman Ravi Agrawal announced the launch of a taxpayers’ lounge at the India International Trade Fair, where he revealed that low-value refunds are being processed, but some individuals have been contacted for missing disclosures. The department aims to resolve the remaining refunds by December 2025. Taxpayers affected by these delays may be entitled to statutory interest under Section 244A of the Income Tax Act.
According to Neeraj Agarwala, a partner at Nangia & Co LLP, taxpayers are entitled to simple interest at a rate of 0.5% per month, which amounts to 6% annually, on delayed refunds. For income tax returns (ITRs) filed before the September 16, 2025 deadline, interest accrues from April 1 until the refund is issued. In cases of belated filings, the interest begins from the date the return is submitted. The interest rate applies to various categories of tax payments, including TDS, TCS, and self-assessment tax. The rules governing the calculation of interest vary based on the type of tax paid and the timing of the payment or filing.
For instance, refunds related to TDS or advance tax will earn interest from April 1 of the assessment year until the refund date. Similarly, self-assessment tax refunds will accrue interest from the later of the return filing date or tax payment date until the refund is issued. However, refunds below ₹100 do not qualify for interest, and the interest is not applicable if the delay is caused by the taxpayer’s actions.
Eligibility for Interest Payments
Interest on delayed refunds is only applicable if the delay is not due to the taxpayer’s fault. Taxpayers who provide incomplete information, respond late to notices, or submit incorrect details may forfeit their eligibility for interest. Additionally, refunds arising from excess self-assessment tax under Section 140A do not attract interest. CA Mohit Gupta, a partner at PNAM & Co LLP, emphasized that interest continues to accrue for as long as the refund remains unpaid, regardless of whether the return is under scrutiny. However, scrutiny proceedings do not interrupt the interest unless the delay is directly linked to the taxpayer.
Reasons Behind Refund Delays
Recent data from the Income Tax Department indicates a 7% increase in net direct tax collections year-on-year, yet refunds have decreased by 18%. Several factors contribute to the slower processing of refunds. One significant issue is the mismatch between taxpayer data and the department’s records. Common triggers for delays include incorrect TAN details, outdated challans, and discrepancies between filings and the Annual Information Statement (AIS) or the new Tax Information Statement (TIS). Even minor inconsistencies can lead to additional verification.
Moreover, larger refund claims, especially those involving foreign income or multiple income streams, tend to take longer to process. Gupta noted that cases with foreign income often face delays due to the non-reflection of foreign tax credits. Additionally, issues related to reporting interest, dividends, and capital gains can trigger automated alerts, further complicating the refund process. Other delays arise from inoperative PANs, pending scrutiny, or incomplete verification, which can halt the refund process until resolved.
Steps Taxpayers Can Take
Taxpayers facing prolonged delays in their refunds have several options to address the issue. If errors remain unresolved or previous rectification requests have not been processed, they can file a new online rectification request under Section 154. The Income Tax portal’s e-Nivaran module allows users to submit detailed complaints, upload supporting documents, and track the status of their requests. In cases of slow responses, escalating the issue through CPGRAMS can prompt quicker action, as grievances are reviewed at higher administrative levels. Taxpayers may also reach out to their jurisdictional Assessing Officer or request a personal hearing to expedite the process. In situations where delays are unjustified, filing a writ petition before the High Court is a legal option available to taxpayers. While refund delays can be frustrating, understanding the interest calculation process and utilizing available grievance channels can help ensure that refunds, along with any applicable interest, are received more promptly.
Observer Voice is the one stop site for National, International news, Sports, Editor’s Choice, Art/culture contents, Quotes and much more. We also cover historical contents. Historical contents includes World History, Indian History, and what happened today. The website also covers Entertainment across the India and World.
