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Section 234D emerges as a lesser-known yet important provision. When taxpayers receive excessive tax refunds initially which are later reduced during thorough assessments, Section 234D comes into play. This section mandates the repayment of surplus refunds, accompanied by an interest charge of 0.5% per month. This interest is levied from the date of refund to the date of assessment. In this blog, we shed light on this section and its various aspects.
If the taxpayer has paid excess tax due to any miscalculation made while filing the ITR, he can claim a refund for it. The Income Tax Department processes your return and pays you the excess amount in the form of an Income Tax Refund.
However, there is a possibility that the income tax department will pay you the excess amount at an earlier stage, but later, during regular assessment, this refund amount is reduced. In such a case, the assessee has to pay back the excess refund along with the interest under section 234D.
The taxpayer is issued a refund under section 143(1) of the Income Tax Act. Upon further scrutiny, if it is found that the refund issued was in excess or the amount of refund is reduced, such excess amount is supposed to be recovered from the assessee along with interest under section 234D.
In other words, interest under section 234D is levied when the assessee receives excess income tax refund and the amount is reduced later upon regular assessment. Such excess refund amount is subject to interest.
Regular assessment refers to the assessment or scrutiny carried out under section 143(3) of the Income Tax Act. It is done by the Income Tax Department to assess the accuracy and completeness of the ITR filed by you. In case of any discrepancy in the ITR, the taxpayer is supposed to give evidence to support his/her claim. If the evidence is not found to be satisfactory, the income tax department might recover the excess refund.
The interest under section 234D is leviable at 0.5% per month or a part thereof, on the amount of refund recoverable from the taxpayer.
The interest under this section is calculated from the date of granting the refund under 143(1) to the date of regular assessment.
If an order under the below sections is received and it is held that the refund granted under section 143(1) is correctly allowed, whether in full or in part, then the interest is reduced accordingly.
| Section | Description |
|---|---|
| Section 154 | Rectification of Mistake |
| Section 155 | Other amendments |
| Section 250 | Order of commissions |
| Section 254 | Orders of Appellate Tribunal |
| Section 260 | Judgement of the High court or the Supreme Court |
| Section 262 | Hearing before the Supreme Court |
| Section 263 | Revision of orders prejudicial to revenue by the commissioner |
| Section 264 | Revision of other orders by commissioner |
Given the fact that interest is leviable under section 234D on the excess refund amount, it is important to understand how it is calculated. As per section 119A, the interest is calculated as follows -
Interest on Annual Basis
When the interest is calculated on an annual basis, the period of interest calculation is rounded off to whole months. In simple terms, any part/fraction of a month will be ignored while calculating the interest.
Interest on Monthly Basis
While calculating the interest on a monthly basis, any part of the month will be ignored and it will be rounded off to a whole month for the purposes of interest calculation. So, if the period of interest calculation is 1st September to 25th September, then the whole month will be considered for calculation of interest.
Amount Rounded off to One Hundred
The amount of tax calculated as a part of the interest is rounded off to the nearest multiple of 100. Any fraction of 100 will be ignored and the nearest multiple of 100 will be considered for interest calculation.
Example -
Mr.A calculates interest u/s 119Aon Rs. 8840 for 5 months and 15 days.
As per calculation method, any fraction of 100 should be ignored. Therefore, ‘ 40’ will be ignored and the amount for interest calculation will be 8800.
Since, any fraction of a month is to be considered as a whole month, therefore, 5 months and 15 days will be rounded off to 6 whole months.
Interest = 0.5% (per month) of 8800 for 6 months = Rs.264.
The nearest multiple of 264 is 300, therefore, 300 will be the interest amount.
The total amount to be paid back under section 234D will be 8800+300 = Rs.9100
Hope this article helped you understand the concept of interest on excess refunds under section 234D. If you have claimed excess tax refunds and your tax refund gets reduced post scrutiny, then, you will be liable to pay interest on this amount under section 234D. Therefore, it is important to understand the various provisions of tax calculation under this section.
If you have failed to file necessary proofs along with your ITR, you will have to fill Form 30. This form serves as a request for claiming a refund of the excess tax paid. This refund claim has to be submitted before the end of the financial year.
Section 234D deals with the interest levied on the excess refund credited to the taxpayer and is supposed to be paid by the taxpayer. On the contrary, section 244A deals with the interest that is levied on the delay in receiving the income tax refund. This interest is supposed to be paid by the income tax department to the taxpayer at 0.5% per month.
Yes, you can claim interest on the tax refund if there is a delay in receiving it. The income tax department is required to pay interest on the amount of refund at 0.5% per month Therefore, you can claim interest on refund from the first day of the assessment year.
Section 234D deals with the interest leviable on the excess refund amount paid to the taxpayer as per the claims made. If it is found in scrutiny assessment that excess refund has been paid to the taxpayer, an interest @0.5% per month is levied on such amount under section 234D.
The interest under section 244A is levied @0.5% per month. It is levied in the case where the taxpayer’s income tax refund is delayed from the Income Tax Department’s end. You are eligible to receive an interest on your refund amount from April 1 to the date of refund.
