Mukesh Patel.in
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INTEREST ON TAX REFUND!

Every taxpayer is entitled to receive refund within one year from the end of the financial year in which his return is filed!

      As per Section 244A of the Income-tax Act, a taxpayer is entitled to interest @ 0.5% for every month or part of the month, (6% per annum) from the first day of April of the assessment year to the date on which the refund is granted, where the refund arises on account of TDS or advance-tax payment. It needs to be borne in mind that as per the proviso to Section 244A, no interest is payable if the amount of refund is less than 10% of the tax payable by the taxpayer.

Illustration: For the Assessment Year 2011-12, a taxpayer has filed his income-tax return claiming a refund of Rs.30,000. The intimation under Section 143(1)(a) is passed by the Assessing Officer on 15-10-2012, but the refund order is issued on 10-04-2013. The Assessing Officer has computed interest of Rs.2,850 @ 0.5% p.m. for a period of 19 months only i.e. from April, 2011 to October, 2012. However, since the refund order is issued in April, 2013, the taxpayer is actually entitled to interest of Rs.3,750, @ 0.5% for a period of 25 months i.e. April, 2011 to April, 2013, when the refund order is actually issued. It also needs to be noted that for the purpose of computing the interest, even part of a month is to be treated as a full month.

INTEREST FROM PAYMENT DATE

In cases other than refund on intimation u/s. 143, such interest is calculated from the date of payment of tax or penalty to the date on which refund is granted.

The Bombay High Court in the case of ITO vs. Asian Paints Ltd. 12 taxmann.com 484 (2011) has held that once the authorized agent of the Central Government collects the tax by debiting the bank account of the taxpayer, the payment of tax to the Central Government would be complete. The fact that there is delay on the part of the authorized agent to credit that amount to the account of the Central Government, it cannot be said that the payment of tax is not made by the taxpayer, till the amount of tax is credited to the account of the Central Government. 

For calculating interest under section 244A(1)(b) of the Act the relevant date is the date of payment of tax and not the date on which the amount of tax collected is credited to the account of the Central Government by the agent of the Central Government. In this context, the Court noted that Circular No. 261, dated 8-8-1979 issued by the Central Board of Direct Taxes to the effect that the date of presenting the cheque should be the date of payment supports the contention of the taxpayer.

 REMEDY IN CASE OF GRIEVANCE

 As per Section 143(1)(a) an intimation along with refund must be sent by the Assessing Officer to the taxpayer, latest by the end of one year from the end of the financial year in which the return is filed. Accordingly where the refund claimed by a taxpayer is not granted by the Assessing Officer within this period, the taxpayer can pursue the matter either with the Assessing Officer or the higher authorities.

 In case of non-granting of interest or incorrect interest working, the taxpayer should make an application for rectification under Section 154 of the Income-tax Act or in appropriate cases move the Commissioner of Income-tax by a petition under Section 264 of the Income-tax Act.

A grievance in relation to income-tax refund or interest thereon can also be taken up with the Grievance Cell of the Income-tax Department, which functions directly under the office of the Chief Commissioner of Income-tax.

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