COURTKUTCHEHRY SPECIAL ON IT REFUND RULES
Income Tax Refund Rules Explained: Interest on Delays and How to Track Your Refund
Taxpayers Entitled to 6% Interest if Refunds Are Delayed Beyond Prescribed Period
Check Refund Status Online via Income Tax Portal and NSDL Tracking System
By Our Legal Reporter
New Delhi: January 01, 2026:
For millions of Indian taxpayers, the income tax refund is a crucial financial relief. However, delays in refund processing have become common, with reports showing that over 73 lakh returns for AY 2025–26 remain unprocessed. This has raised questions about whether the government is liable to pay interest on delayed refunds and how taxpayers can track their claims.
Under the Income Tax Act, 1961 (Sections 237–245) and now transitioning into the Income Tax Act, 2025 (Sections 431–438), taxpayers are entitled to refunds if they have paid excess tax. The government must pay interest at 6% per annum if refunds are delayed beyond the prescribed period. Taxpayers can check refund status on the Income Tax e-filing portal (www.incometax.gov.in) or via the TIN NSDL portal using their PAN and assessment year.
The rules governing refunds are clearly laid out in the Income Tax Act, and recent clarifications by the Central Board of Direct Taxes (CBDT) have reinforced taxpayer rights.
What Are Income Tax Refunds?
An income tax refund arises when the tax paid (through advance tax, self-assessment tax, or TDS) exceeds the actual liability. Once the Income Tax Department processes the return, the excess amount is refunded to the taxpayer.
Refunds are processed by the Centralized Processing Centre (CPC), Bengaluru, and credited directly to the taxpayer’s bank account.
Refund Rules Under the Income Tax Act
Old Law (1961 Act – Sections 237–245)
- Refunds are due when excess tax is paid.
- Interest at 6% per annum is payable if refunds are delayed beyond the prescribed period.
- Refunds can be adjusted against outstanding tax liabilities.
New Law (Income Tax Act, 2025 – Sections 431–438)
- Effective from April 1, 2026, replacing the 1961 Act.
- Provisions remain largely similar but simplified for clarity.
- Refunds must be processed promptly, with interest liability continuing for delays.
Interest on Delayed Refunds
- Rate: 6% per annum.
- Period: From the date of claim to the date refund is granted.
- Eligibility: Applies if refund is not issued within the statutory time after return processing.
- Automatic Credit: Interest is automatically added to the refund amount.
This ensures taxpayers are compensated for the government holding their money longer than necessary.
Where to Check Refund Status
Taxpayers can track refunds through:
- Income Tax e-filing portal (www.incometax.gov.in)
- Login with PAN and password.
- Navigate to “Refund Status.”
- Shows whether refund is processed, pending, or failed.
- NSDL TIN Portal (https://tin.tin.nsdl.com/oltas/refundstatus.jsp)
- Enter PAN and assessment year.
- Displays refund status and bank credit details.
- Bank SMS/Email Alerts
- Banks notify taxpayers once refunds are credited.
Current Challenges
- Processing Delays: Over 73 lakh returns remain unprocessed for AY 2025–26.
- Mismatch Issues: Errors in Form 16, deductions, or disclosures cause delays.
- System Alerts: Automated checks flag suspicious claims, slowing refunds.
Government’s Position
CBDT officials have clarified that delays often occur due to:
- Verification of large deduction claims.
- Cross-checking donations and exemptions.
- Ensuring compliance with new reporting standards.
While delays are acknowledged, the department insists that interest liability is honoured when refunds are late.
Public Reaction
Taxpayers have expressed frustration over delays, especially during the festive season when refunds are crucial. Financial experts advise taxpayers to:
- File returns early.
- Ensure accuracy in Form 16 and deductions.
- Regularly check refund status online.
Conclusion
The Income Tax Refund Rules protect taxpayers by ensuring refunds are processed promptly and interest is paid on delays. With millions awaiting refunds, the government faces pressure to improve efficiency. For taxpayers, the key is to file accurate returns, track refunds online, and know their rights under the law.
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