Interest on excess refund
[Section-426 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 426(1) of Income Tax Act 2025
426(1) Subject to the other provisions of this Act, where any refund is granted to the assessee under section 270(1), and—
- 426(1)(a) no refund is due on regular assessment; or
- 426(1)(b) the amount refunded under section 270(1) exceeds the amount refundable on regular assessment,
the assessee shall be liable to pay simple interest at the rate of 0.5% on the whole or the excess amount so refunded, for every month or part of a month comprised in the period from the date of grant of refund to the date of such regular assessment.
Section 426(2) of Income Tax Act 2025
426(2) Where, as a result of an order under section 287 or 288 or 359 or 363 or 365(10) or 368 or 377 or 378, the amount of refund granted under section 270(1) is held to be correctly allowed, either in whole or in part, then, the interest chargeable, if any, under sub-section (1) shall be reduced accordingly.
Section 426(3) of Income Tax Act 2025
426(3) Where in relation to a tax year, an assessment is made for the first time under section 279, the assessment so made shall be regarded as a regular assessment for the purposes of this section.
FAQs on Section 426 of Income Tax Act 2025
What is interest on excess refund under the Income Tax Act, 2025?
Interest on excess refund refers to the simple interest payable by an assessee when the refund granted under section 270(1) exceeds the amount refundable determined in the regular assessment.
Which section of the Income Tax Act, 2025 governs interest on excess refund?
Section 426 of the Income Tax Act, 2025 governs the provisions related to interest on excess refund.
When is an assessee liable to pay interest on excess refund?
An assessee becomes liable to pay interest if:
- No refund is due on regular assessment, or
- The refund granted earlier exceeds the amount determined as refundable in the regular assessment.
What is the rate of interest applicable under section 426(1)?
The rate of interest is 0.5% per month or part of a month.
From which date is the interest on excess refund calculated?
Interest is calculated from the date of grant of refund under section 270(1) to the date of regular assessment.
How is the interest computed if the refund granted was partially in excess?
Interest is computed on the excess amount refunded at 0.5% per month or part thereof for the period between refund grant and regular assessment.
What if later orders confirm the refund was correct?
As per section 426(2), if an order under sections 287, 288, 359, 363, 365(10), 368, 377, or 378 holds that the refund granted under section 270(1) was correctly allowed, either wholly or partly, then the interest chargeable under section 426(1) is reduced accordingly.
What is considered a ‘regular assessment’ for the purpose of section 426?
According to section 426(3), where an assessment is made for the first time under section 279, it is deemed to be a regular assessment for the purposes of section 426.
Is the interest simple or compound in nature?
The interest is simple interest.
Is partial month considered while calculating interest under section 426?
Yes, even a part of a month is considered as a full month for interest computation.
Does interest on excess refund apply automatically or only if demanded by the Assessing Officer?
It applies mandatorily if the conditions under section 426(1) are met.
Can an assessee dispute the interest charged under section 426?
Yes, the assessee can appeal if they believe the refund was correctly granted and that the interest charge is not justified.
Does this provision apply to refunds granted before 1st April, 2026?
No, section 426 applies with effect from 1st April, 2026 as per the Income Tax Act, 2025.
Will interest still be charged if delay in assessment is due to the department’s fault?
Yes, interest under section 426 is charged based on the period between refund and regular assessment, irrespective of the reason for delay.
Refresh Page