ITR Deadline Extended: Taxpayers Could Benefit from Increased Interest
With the Income Tax Return (ITR) filing deadline for Assessment Year 2025-26 now extended from July 31 to September 15, 2025, taxpayers are left wondering about the potential implications of this change. Experts suggest that this extension could lead to increased interest liabilities for the government on tax refunds. While the extension provides additional time for taxpayers, it may also result in higher payouts from the exchequer, prompting a closer look at the mechanics of tax refund interest under Section 244A of the Income Tax Act.
Extended Deadline and Its Financial Implications
The extension of the ITR filing deadline may indeed increase the government’s interest liability on tax refunds. Shalini Jain, a Tax Partner at EY India, explained that taxpayers who have overpaid taxes, such as excess TDS or advance tax, are eligible for interest on their refunds. This interest accrues at a rate of 0.5% per month from April 1 of the assessment year until the refund is issued. Given the new deadline, taxpayers could see higher interest payments if they file by September 15, 2025. Jain emphasized that interest is only payable when the refund exceeds 10% of the assessed tax liability. Moreover, any interest received on refunds is considered taxable income for the taxpayer.
Despite the potential for increased interest payouts, Jain also noted a practical benefit for the government. The additional time allows for better preparation of tax systems and ensures accurate processing of TDS/TCS statements, which can enhance the overall filing experience for taxpayers.
Interest on Refunds: What Taxpayers Should Know
Taxpayers will still be entitled to receive interest on their tax refunds if they file their returns by the new deadline. Ritika Nayyar, a Partner at Singhania & Co., pointed out that the government must compensate taxpayers for the extra time their refunds are delayed due to the extension. The interest is calculated at the same rate of 0.5% per month, starting from April 1 of the assessment year until the refund is granted. This means that if a taxpayer files their return by the extended deadline, they will still accrue interest for the additional months until their refund is processed.
The scenarios presented by tax experts illustrate how the extended deadline could impact refund amounts. For instance, if a taxpayer files a return on September 15, 2025, and the refund is processed the next day, they could receive a significant interest payout. However, if the processing takes longer, the interest amount could increase further, resulting in higher total refunds.
Potential Interest Scenarios and Their Impact
To better understand the financial implications of the extended deadline, Abhishek Soni, CEO of Tax2Win, provided examples of how interest payouts could vary based on the timing of refund processing. If a taxpayer files a return on September 15, 2025, and the refund is processed the next day, they could receive an interest amount of Rs 2,750 for a refund of Rs 1,00,000. However, if the refund processing is delayed until October 3, 2025, the interest could rise to Rs 3,500 for the same refund amount. This demonstrates how longer processing times can lead to higher payouts, which ultimately increases the financial burden on the Income Tax Department.
Experts also highlighted that while the extension may seem beneficial for taxpayers, the actual financial gain from delaying the filing may not be substantial. The interest rates provided by the government are often comparable to those offered by banks, making it less advantageous to postpone filing.
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