ITR refund: Few things to know about interest calculation

Now that the last date for filing Income Tax Return (ITR) (July 31, 2022) has gone, most taxpayers are waiting for returns. Those who still haven’t filed the ITR can file a belated one before December 31, 2022. However, such taxpayers would not be paid interest on their ITR refund from April 1, 2022. Also, it is to be noted that principal amount of refund for taxpayers is non-taxable but interest would be treated as income in FY23 and has to be added as annual income while filing ITR for AY2023-24.

So, how is interest calculated on ITR? ITR refund is calculated at 0.5% every month. Also, Section 234D of the income tax act provides for levy of interest on excess refund given to taxpayer.

Here are a few rules with respect to ITR refund and calculation:

Only those taxpayers who file within the due date or after it are eligible for ITR refund.

Those who filed within the due date of July 31, 2022, shall get interest on ITR refund from April 1, 2022.

A taxpayer filing the ITR within the due date will be eligible for a monthly interest of 0.50% on the refund amount.

ITR refund is the income that the taxpayer already declared for the concerned financial year. Therefore, principal amount of the ITR is tax free. But the interest earned on ITR refund is not and will taxable as per applicable tax slab after adding the former to the year’s income.

For calculating, interest on ITR refund, any fraction of month would be treated as a single month whereas any fraction of one hundred rupees all be ignored. For instance, interest on Rs 8,489 for 3 months and 10 days, any fraction of Rs 100 is ignored. Thus, interest calculated would be Rs 8,400.