Introduction:
Section 244A of the Income Tax Act, 1961 is an important provision that deals with the issue of refund of excess tax paid by a taxpayer. This provision has been inserted in the Act to provide relief to taxpayers who have paid more tax than what is due from them. In this blog, we will discuss section 244A of the Income Tax Act in detail.
What is section 244A of Income Tax Act?
Section 244A of the Income Tax Act, 1961 deals with the issue of interest on refunds. This section provides for the payment of interest on any amount that is refunded to a taxpayer. The interest is calculated from the date on which the tax was paid to the date on which the refund is granted.
The section applies to both individual taxpayers as well as corporate entities. It is applicable in cases where the refund arises as a result of excess tax paid, tax deducted at source (TDS), or advance tax.
Interest on refunds:
Under section 244A, the interest on refunds is calculated at the rate of 0.5% per month or part of a month. The interest is calculated from the date of payment of tax to the date on which the refund is granted. However, the interest is not payable if the amount of refund is less than 10% of the tax payable by the taxpayer for that assessment year.
For example, if a taxpayer has paid Rs. 1 lakh as tax for an assessment year and is eligible for a refund of Rs. 8,000, then no interest will be payable on this amount. However, if the refund amount is Rs. 12,000 or more, then the taxpayer will be eligible for interest on the refund at the rate of 0.5% per month or part of a month.
Time limit for granting refunds:
As per the Income Tax Act, the assessing officer is required to process the refund within a period of one year from the end of the financial year in which the return was filed. If the assessing officer fails to process the refund within this time limit, then interest is payable to the taxpayer on the refund amount.
The interest is payable from the expiry of one year from the end of the financial year in which the return was filed till the date on which the refund is granted. The rate of interest payable in such cases is 0.5% per month or part of a month.
Eligibility for interest on refund:
The provision of interest on refund under section 244A is applicable to all taxpayers, including individuals, Hindu Undivided Families (HUFs), companies, and other entities. In order to be eligible for interest on refund, the taxpayer should have paid excess tax or tax deducted at source (TDS) or advance tax. The excess tax can arise due to various reasons such as claiming too many deductions or exemptions, filing revised returns, or paying tax in anticipation of income.
The provision of section 244A is also applicable in cases where the taxpayer has filed an appeal against the assessment order and the appellate authority has directed a refund. In such cases, the interest is calculated from the date of payment of tax to the date on which the refund is granted by the assessing officer.
Calculation of interest on refund:
The interest on refund is calculated at the rate of 0.5% per month or part of a month. The interest is calculated from the date of payment of tax to the date on which the refund is granted by the assessing officer. The period of calculation of interest includes the date of payment of tax, the date of filing the return of income, and the date on which the refund is granted.
For example, if a taxpayer paid Rs. 1,00,000 as advance tax on 15th June, 2022 and filed the return of income on 31st July, 2022, and is eligible for a refund of Rs. 50,000, the interest on refund will be calculated from 15th June, 2022 to the date on which the refund is granted.
The interest on refund is also taxable under the Income Tax Act, and it is considered as income of the taxpayer. The taxpayer should include the interest amount in the income tax return for the relevant assessment year and pay tax on it at the applicable rate.
Challenges faced by taxpayers in claiming interest on refund:
Despite the provision of interest on refund under section 244A of the Income Tax Act, taxpayers often face challenges in claiming interest on refund. One of the major challenges faced by taxpayers is the delay in processing of refunds by the assessing officers. Due to the delay, taxpayers are not able to claim interest on refund for the period of delay.
Another challenge faced by taxpayers is the incorrect calculation of interest by the assessing officers. In some cases, the assessing officers may not calculate the interest correctly, leading to underpayment of interest on refund to the taxpayer.
In order to address these challenges, the Income Tax Department has introduced several measures to expedite the processing of refunds and ensure the correct calculation of interest on refund. The department has implemented a centralized processing system for the processing of income tax returns and refunds, which has significantly reduced the processing time.
The department has also introduced a system of pre-filled income tax returns, which reduces the chances of errors in the calculation of refunds. Additionally, the department has set up a dedicated helpdesk to address the grievances of taxpayers regarding refunds and interest on refund.
Conclusion:
Section 244A of the Income Tax Act, 1961 provides relief to taxpayers who have paid more tax than what is due from them. The provision provides for the payment of interest on refunds in cases where the refund arises as a result of excess tax paid, tax deducted at source (TDS), or advance tax. The interest is calculated at the rate of 0.5% per month or part of a month and is payable from the date of payment of tax to the date on which the refund is granted. The provision also specifies the time limit for granting refunds and provides for the payment of interest in case of delays by the assessing officer.
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Frequently Asked Questions (FAQ’s)
- What is section 244A of the Income Tax Act, 1961?
Section 244A of the Income Tax Act, 1961 provides for the payment of interest on refunds of excess tax, tax deducted at source (TDS), or advance tax paid by a taxpayer.
2. Who is eligible for interest on refund under section 244A?
All taxpayers, including individuals, Hindu Undivided Families (HUFs), companies, and other entities, are eligible for interest on refund under section 244A if they have paid excess tax, TDS, or advance tax.
3. What is the rate of interest payable under section 244A?
The rate of interest payable under section 244A is 0.5% per month or part of a month.
4. From which date is the interest on refund calculated?
The interest on refund is calculated from the date of payment of tax to the date on which the refund is granted by the assessing officer.
5. Is the interest on refund taxable?
Yes, the interest on refund is taxable under the Income Tax Act and should be included in the income tax return for the relevant assessment year.
6. How is the interest on refund calculated?
The interest on refund is calculated by multiplying the amount of refund by the rate of interest and the period for which the interest is payable.
7. What is the time limit for granting refunds under section 244A?
The time limit for granting refunds under section 244A is three months from the end of the month in which the return of income is filed.
8. What are the reasons for delay in processing of refunds?
The reasons for delay in processing of refunds include non-verification of income tax returns, mismatch of tax credits, and manual processing of returns.
9. Can a taxpayer claim interest on refund for the period of delay in processing of refund?
No, a taxpayer cannot claim interest on refund for the period of delay in processing of refund.
10. Can a taxpayer claim interest on refund in case of appeal against assessment order?
Yes, a taxpayer can claim interest on refund in case of appeal against assessment order if the appellate authority has directed a refund.
