Section 244A of the Income Tax Act lays down provisions for Interest on Delayed Refunds. In other words, Section 244A applies when Income Tax Refund to the Assessee was delayed by the Department. When there is a delay in the processing of the Refund to the Assessee, the Income Tax Department has to pay Interest under section 244A. This Section is relatively new to the Income Tax Act. Section 244A was introduced only a couple of years back. Due its mass appeal, Section 244A is one of the most famous Income Tax Provisions among the Finance professionals and also Assessees alike.
Section 244A Applicability
If the amount of refund is not less than ten per cent of the tax as determined on regular assessment, and the refund is out of any tax collected at source under Section 206C or treated as paid under Section 199, during the financial year immediately preceding the assessment year, interest shall be payable at the rate of ½ per cent for every month or part of a month comprised in the period from 1st day of April of the assessment year to the date on which the refund is granted
Section 244A applicability when Tax Paid was u/s 140A
Where the refund is out of any tax paid under section 140A, such interest under section 244A shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period, from the date of furnishing of return of income or payment of tax, whichever is later, to the date on which the refund is granted [Amendment vide Finance Act, 2016 w.e.f. 1st June, 2016 in Section 244A].
No interest shall be payable if the amount of refund is less than ten percent of the tax as determined under 143(1) on regular assessment.
Section 244A Interest in Other Cases
In any other case, Interest on Refund under section 244A of the Income Tax Act shall be calculated at the rate of one half per cent for every month or part of the month comprised in the period or periods from the date or, dates of payment of the tax or penalty to the date of grant of refund.
The “date of payment of tax or penalty” means the date on and from which the amount of tax or penalty specified in the notice of demand issued under Section 156 is paid in excess of such demand.
Section 244A Applicability on Refunds from an Appeal
Where a refund arises out of appeal effect being delayed beyond the time prescribed under sub-section (5) of section 153, the assessee shall be entitled to receive, in addition to the interest payable under sub-section (1) of section 244A, an additional interest on such refund amount calculated @ 3% per annum.
It is clarified that in cases where extension is granted by the Principal Commissioner or Commissioner by invoking proviso to sub-section (5) of section 153, the period of additional interest, if any, shall begin from the expiry of such extended period. [Amendment vide Finance Act, 2016 w.e.f. 1st June, 2016]
However, where the proceedings resulting in the refund are delayed for reasons attributable to the assessee, whether wholly or partly, the period of delay so attributable to him shall be excluded as per the decision taken by the Chief Commissioner or Commissioner (his decision thereon shall be final).
Any payment of advance tax payable made before March 31 shall be treated as advance tax paid during the financial year.
In case of public holiday or bank holiday, date of payment automatically falls in the next working day and for that delay, interest is not charged under Sections 234B and 234C vide Circular No. 676 dated 14.01.1994.
Tax to be computed at the prevailing rate on the current income of the assessee, in a financial year.