Income Tax e Filing Delays Explained: How Much Interest Taxpayers Pay for Missing Deadlines and What the Government Owes on Late Refunds
For many taxpayers, the Income Tax e filing season ends in one of two frustrating ways, either paying extra interest for filing returns late or waiting endlessly for refunds that do not arrive on time. While the law penalises delays by taxpayers, it also places an obligation on the government to compensate individuals when refunds are held back.
New Delhi, December 31: For many taxpayers, the Income Tax e filing season ends in one of two frustrating ways, either paying extra interest for filing returns late or waiting endlessly for refunds that do not arrive on time. While the law penalises delays by taxpayers, it also places an obligation on the government to compensate individuals when refunds are held back. Understanding how interest works on both sides can help taxpayers make informed decisions and avoid unnecessary financial loss.
Interest Burden When Taxpayers File Late
When an income tax return is filed after the prescribed deadline and tax remains unpaid, interest begins to accrue automatically. Under Section 234A of the Income Tax Act, interest is charged at 1 percent per month or part of a month on the outstanding tax amount. This interest runs from the original due date of filing until the actual date of payment. Income Tax Refund Delayed Due to ITR Mismatch? Revised vs Belated Return Explained, Who Should File What Before December 31.
For example, if the due date for filing was September 16 and the tax was finally paid on December 30, interest would be charged for four months at 1 percent per month, amounting to 4 percent of the unpaid tax. In addition to late filing, interest can also arise due to failure to pay advance tax or deferment of advance tax instalments, typically calculated from April 1 of the relevant assessment year until compliance. New Income Tax Bill 2025 Passed in Lok Sabha: All You Need to Know About Key Changes.
It is important to note that this interest applies only when tax is payable. If a taxpayer has already paid all dues and files the return late merely to complete procedural requirements, no interest under Section 234A is levied.
Interest Payable by the Government on Delayed Refunds
Just as taxpayers pay interest for delays, the government is also liable to pay interest when excess tax paid is not refunded on time. Under Section 244A, the income tax department must pay simple interest at 0.5 percent per month on delayed refunds.
In most cases, this interest is calculated from April 1 of the assessment year until the date the refund is actually granted. However, if the Income Tax e filing itself is delayed, the interest period is reduced and starts only from the date the return was filed, not from April 1. This distinction can significantly impact the total interest received by the taxpayer.
Why Income Tax Refunds Get Held Up
Refund delays are common and usually occur due to technical or compliance-related issues. Frequent reasons include mismatches between figures reported in the return and data available in Form 26AS, AIS, or TIS; bank accounts not being pre-validated; PAN not linked with Aadhaar; pending verification; or returns being selected for scrutiny. In some cases, existing tax dues are adjusted against the refund. Processing backlogs during peak Income Tax e filing periods also contribute to delays.
Even minor errors or missing details can push a return out of automated processing and into manual verification, slowing down the refund cycle.
When Refund Interest May Be Reduced or Denied
Interest on refunds is not payable if the delay is caused by errors or incomplete information in the return, non-response to tax notices, or repeated extension requests by the taxpayer. Refunds arising solely from excess self-assessment tax paid under Section 140A may also not qualify for interest. Additionally, if the refund amount is below INR 100, no interest is payable under the law.
What to Do If Refund or Interest Is Not Credited
Taxpayers should regularly track refund status on the Income Tax e filing portal and ensure bank details are correctly updated and pre-validated. If a refund fails, an online re-issue request can be placed. In cases of short refunds or missing interest, taxpayers can file a rectification application under Section 154 or raise a grievance through the e-Nivaran facility. For unresolved matters, the Centralised Processing Centre (CPC), Bengaluru, can be contacted for further assistance.
Being proactive and accurate during Income Tax e filing remains the best way to avoid both penalties and prolonged refund delays.
(The above story first appeared on LatestLY on Dec 31, 2025 11:12 AM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).