Income Tax Refund 33% Interest Rates? Know the Real Truth – Will You Really Get More Interest This Year?

Income Tax Refund: Good news for taxpayers has been a topic of discussion recently – it’s being said that one might receive up to 33% more interest on income tax refunds this year! Many might be excited hearing this, but what’s the real story behind it? Is the Income Tax Department truly offering such a high interest rate? Let’s delve into this matter in detail.

What Exactly is Section 244A of the Income Tax Act?

First, it’s essential to understand how interest on income tax refunds is determined. According to Section 244A of the Income Tax Act, 1961, if a taxpayer has paid more tax than required, the Income Tax Department is liable to pay interest when refunding the excess amount. The interest rate is 0.5% per month or 6% per annum (simple interest). However, one crucial point to remember is that this interest is applicable only if the refund amount is 10% or more of your total tax liability.

So, What Does This “33% More Interest” Mean?

According to various media reports, the deadline for filing Income Tax Returns (ITR) for the Financial Year 2024-25 (Assessment Year 2025-26) has been extended from July 31, 2025, to September 15, 2025. It is due to this extension that the amount of interest received on refunds might increase somewhat, which in some cases is being referred to as “up to 33% more.”

Let’s break this down. Generally, if you file your ITR within the due date, interest is calculated at 0.5% per month from the first day of the Assessment Year (i.e., April 1st) until the date the refund is issued.

Since the ITR filing deadline has been extended by about one and a half months, and if your refund processing takes until, say, October, you might receive interest for approximately two additional months compared to the usual scenario. For instance, if you previously would have received interest for 4 months, you might now receive it for 6 months. This additional 2 months of interest is what is being arithmetically shown as an increase of around 33% (or in some calculations, even more, like 50%) in the interest amount. This means you are not getting an interest rate of 33% on your principal refund amount; rather, the total amount of interest you receive could be about 33% (or a similar figure) higher than what you might have received previously.

Example: Let’s say your refund amount is ₹25,000. In a normal scenario (filing in July, refund in August), if you were to receive interest for 4 months, it would be ₹500 (₹25,000 * 0.5% * 4). In the changed scenario (filing by September 15, refund in October), you might receive interest for 6 months, which would be ₹750 (₹25,000 * 0.5% * 6). In this case, the interest amount has increased by ₹250, which is 50% of the previous interest of ₹500. Some calculations might show this increase closer to 33%, depending on the assumed number of extra months for which interest is calculated. The key takeaway is that the interest rate (6% per annum) remains the same; only the total interest amount received increases due to the extended period.

How is the Interest Calculated?

• If the ITR is filed on or before the due date for the Assessment Year (in this case, September 15, 2025), interest will be calculated from April 1, 2025, until the date the refund is granted.
• If the ITR is filed after the due date, interest will be calculated from the date of ITR filing until the date the refund is granted.

Important Points to Remember:

• The interest received on your income tax refund is taxable. This interest must be shown as ‘Income from Other Sources’ in your income tax return for the following year.
• To ensure timely and accurate refunds, provide correct bank details in your ITR form and ensure your bank account is pre-validated.
• Delaying ITR filing solely in anticipation of marginally higher interest is not advisable. Filing your return on time is always the best practice.

Therefore, while there is indeed a possibility of receiving a somewhat higher interest amount on your income tax refund this year, it’s not a 33% annual interest rate, but rather an increase in the total interest amount received due to the extended timeline. File your income tax return accurately and on time to make the most of this situation.