Budget 2023: Do you know govt pays just 6% interest on delayed Income Tax refund, but charges 12% as penalty?

Budget 2023: Taxpayers must report their sources of income, transactions and investments while filing income tax return before the deadline every year. If a taxpayer misses the ITR filing deadline, then the Income Tax department collects late payment penalty and interest from them. But, do you know that the department also pays interest if the taxpayer files for a refund, and the tax refund is delayed?

Under Section 234D, if a taxpayer miscalculates and pays excess income tax and the return gets delayed, a levy of interest on excess refund is granted to the taxpayer. Interest under section 234D is levied on the whole or the excess amount of refund.

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How is the interest on excess amount calculated?

Before understanding the provisions of section 234D, it is important to understand the provisions of Rule 119A which spells out the manner of computation of interest under the Income-tax Act. As per Rule 119A, while calculating the interest payable by the taxpayer or the interest payable by the Central government to the taxpayer under any provision of the Act:

a) Where interest is to be calculated on an annual basis, the period for which such interest is to be calculated shall be rounded off to a whole month or months. For this purpose, any fraction of a month shall be ignored and the period so rounded off shall be deemed to be the period in respect of which the interest is to be calculated;

b) Where the interest is to be calculated for every month or part of a month comprised in a period, any fraction of a month shall be deemed to be a full month and the interest shall be so calculated;

c) The amount of tax, penalty or other sum in respect of which such interest is to be calculated shall be rounded off to the nearest multiple of one hundred rupees. For this purpose any fraction of one hundred rupees shall be ignored and the amount so rounded off shall be deemed to be the amount in respect of which the interest is to be calculated.

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Zee Business Managing Editor Anil Singhvi’s take

Zee Business Managing Editor Anil Singhvi believes that there should be a parity when it comes to paying interest amount. The government collects 1 per cent penalty every month (12 per cent yearly) from the taxpayer in case of any delay. However, the government pays 0.50 per cent interest per month (6 per cent yearly) in case the refund is delayed or excess tax is collected from the taxpayer.

He said that taxpayers who file late income tax returns have to pay interest from the date of the filing, but the income tax department pays interest on excess returns from the date after all the assessment of the filing is done. He said that the government should take this into account and ensure uniformity.