Section 437 — Interest on Refund | ITA 2025

Section 437 of the Income-tax Act, 2025 corresponds to s. 244 A of the Income-tax Act, 1961. STATUTORY ARCHITECTURE Simple interest at 0.5% per month (or part of month) on refund. Period: from date of payment of tax / date of intimation…

Section 437 — - INTEREST ON REFUND

Section 437 of the Income-tax Act, 2025 corresponds to s. 244A of the Income-tax Act, 1961.

Statutory text — Income-tax Act, 2025

( 1) Where a refund is due to the assessee under this Act, he shall, subject to t he provisions of this section, be entitled to receive, in addition to the re- fund, simple interest thereon calculated at the rate of 0.5% for every month or part of a month, in the circumstances specified in column B of the Table below, for the period specified in column C of the said Table.

TABLE Sl. Circumstances Period No.

A B C

1. Where the refund is out of tax (a) From the first day of April of the collected at source under section year following the tax year to the 394 or paid by way of advance tax date on which the refund is granted, or treated as paid under section where the return of income has 390(5), during the financial year. been furnished on or before the due date as specified in section 263(1);

(b) from the date of furnishing the return of income to the date on which the refund is granted; in any other case.

2. Where the refund is out of any tax From the date of furnishing of return of paid under section 266. income or payment of tax, whichever is later, to the date on which the refund is granted.

3. Any other case. From the date or, as the case may be, dates on and from which the amount of tax or penalty specified in the notice of demand issued under section 289 is paid in excess of such demand to the date on which the refund is granted.

(2) No interest shall be payable under sub-section (1) (Table: Sl. No. 1 or 2), if the amount of refund is less than 10% of the tax as determined under section 270(1)or on regular assessment.

(3) Where refund, mentioned in sub-section (1) (Table: Sl. No. 1), arises as a result of an order passed by the Assessing Officer in consequence of an application made by the assessee under section 288(1) (Table: Sl. No. 11), interest shall be calculated at the rate of 0.5% for every month or part of a month comprised in the period from the date of such application to the date on which the refund is granted.

(4) In a case where a refund arises as a result of giving effect to an order under sec- tion 359 or 363 or 365(10) or 368 or 377 or 378, wholly or partly, otherwise than by making a fresh assessment or reassessment, the assessee shall be entitled to receive an additional interest which shall be—

(a) in addition to the interest payable under sub-section (1); and

(b) computed on such amount of refund calculated at the rate of 3% per annum, for the period beginning from the date following the date of expiry of the time allowed under section 286(1) (Table: Sl. Nos. 9 and 10) to the date on which the refund is granted.

(5) For the purposes of sub-section (4), in a case where proceedings for assessment or reassessment are pending, in computing the period for determining the addi- tional interest payable, the period beginning from the date on which such refund is withheld by the Assessing Officer as per and subject to provisions of section 438(3) and ending with the date upto which such refund is withheld, shall be excluded.

(6) Where refund of any amount becomes due to the deductor in respect of any amount paid to the credit of the Central Government under Chapter XIX-B, such deductor shall be entitled to receive, in addition to the said amount, simple interest thereon calculated at the rate of 0.5% for every month or part of a month comprised in the period, from the date on which—

(a) claim for refund is made in such form as may be prescribed; or

(b) tax is paid, where refund arises on account of giving effect to an order under section 359 or 363 or 365(10) or 368, to the date on which the refund is granted.

(7) If the proceedings resulting in the refund are delayed for reasons attributable to the assessee or the deductor, as the case may be, whether wholly or in part, the period of the delay so attributable to him shall be excluded from the period for which interest is payable under this section.

(8) Where any question arises as to the period to be excluded under sub-section (7), it shall be decided by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner whose decision thereon shall be final.

(9) Where, as a result of an order under section 270(10) or 271 or 279 or 287 or 288 or 359 or 363 or 365(10) or 368 or 377 or 378, the amount on which interest was payable under sub-section (1) or (3) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly.

(10) In a case where the interest is reduced under sub-section (9), the Assessing Officer shall serve on the assessee a notice of demand in such form as may be pre- scribed specifying the amount of the excess interest paid and requiring him to pay such amount.

(11) The notice of demand under sub-section (10) shall be deemed to be a notice under section 289 and the provisions of this Act shall apply accordingly. Set off and withholding of refunds in certain cases.

STATUTORY ARCHITECTURE

Simple interest at 0.5% per month (or part of month) on refund. Period: from date of payment of tax / date of intimation u/s 143(1) to date of refund. Three sources: (a) excess TDS / TCS / advance tax (interest from 1-Apr of AY), (b) self-assessment tax (interest from date of payment), (c) appellate / revisional refund (interest from date of payment / due date).

INTEREST DENIED FOR ASSESSEE-DELAY

If proceedings resulting in refund are delayed for reasons attributable to assessee (e.g., late filing of return, late submission of documents), AO may exclude such period from interest calculation. Decision is appealable.

WORKED EXAMPLE

Refund INR 2L; advance tax paid March-2026; refund issued July-2027 (16 months delay). Interest = 2L * 0.5% * 16 = INR 16,000.

PRACTITIONER PLANNING NOTES

Interest under s. 437 [244A] is taxable in year of receipt as 'income from other sources'.
Compare with Revenue's recovery interest s. 423 / 424 / 425 (1% / month) -- asymmetric.
Interest withheld on disputed grounds: pursue via writ; SC in CIT v. HEG Ltd. (2010) 324 ITR 331 (SC) recognised right to interest on interest.
Refund adjustment u/s 245: interest accrues till adjustment, not till refund order.

CROSS-REFERENCES

s. 263 (filing of return).
s. 270 [143(1)] (intimation).
s. 245 (set-off of refund against demand).
s. 119(2)(b) (condonation of delay).

← All sections (537)Act 2025 hub

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
2025 provision	1961 counterpart
s. 437 -- Interest on Refund	s. 244A