Many taxpayers who filed their returns on time are still waiting months for their income tax refunds. What often goes unnoticed is that in many cases, the government is legally required to pay interest on delayed refunds.
Below is a clear guide to when this interest applies, why refunds get delayed, and what steps taxpayers can take to resolve pending cases.
When Interest Is Payable
Under Section 244A of the Income Tax Act, simple interest at 0.5 percent per month (6 percent per annum) is payable on delayed refunds.
The calculation works as follows:
- If the return was filed within the due date (16 September 2025 for AY 2025-26), interest is computed from 1 April of the assessment year until the date of refund.
- If the return was filed after the due date, interest is computed from the date of filing.
Interest is not payable if the delay can be attributed to the taxpayer. This includes incorrect information, failure to respond to notices, or delays in verification.
No interest is paid if:
- The refund amount is below ₹100
- The refund arises purely from excess self-assessment tax under Section 140A
Why Refunds Are Getting Delayed
Refund processing has slowed this year. As of 10 November 2025, net direct tax collection has increased 7 percent year-on-year, but refunds have fallen 18 percent.
Based on industry experience, the most common causes are:
1. TDS or AIS mismatches
TDS credit mismatches remain the largest source of delay. Errors include:
- Wrong TAN or section reported
- Missed or outdated challans
- Delay in TDS return filing by employers or banks
- Interest and dividend mismatches between the return and Form 26AS or AIS
Even small inconsistencies can trigger manual verification.
2. Complex returns
Refunds involving foreign income, capital gains, multiple income sources or high refund amounts are subject to additional checks. Foreign tax credit errors and Schedule FA mismatches are common triggers.
3. PAN–Aadhaar or bank validation issues
If PAN is not linked to Aadhaar, it becomes inoperative. This affects:
- TDS credit matching
- E-verification
- Bank account validation
- Refund release by CPC
Unvalidated bank accounts, outstanding tax demands or pending scrutiny assessments also stop refunds from being issued.
Recent Change That May Help
The CBDT has issued Notification 155/2025 granting the CPC Commissioner power to issue rectifications directly under Section 154. Earlier, only specific officers could pass rectification orders, which slowed down corrections and refund release.
This change is expected to speed up processing of mismatches and pending rectifications.
What You Can Do if Your Refund Is Stuck
You can:
1. File a rectification request (Section 154)
Use the e-filing portal if the return has incorrect data or the department has raised an incorrect demand.
2. Raise a grievance through e-Nivaran
This allows you to submit supporting documents and track status online.
3. Escalate via CPGRAMS
This public grievance portal is monitored at senior levels and often results in faster departmental response.
4. Write to your Assessing Officer
A written representation or request for a hearing can speed up action in long-pending cases.
5. Approach the High Court
In cases of repeated departmental inaction or unjustified withholding of refund, writ petitions have been successfully used as a remedy.
Why This Matters
A delayed refund impacts liquidity. The law ensures that if the delay is not caused by the taxpayer, the government must compensate you through interest.
While the rate is modest, it reinforces an important principle: your money cannot be held indefinitely without consequence.
Tracking refund status, correcting mismatches early, and using available grievance mechanisms can significantly improve outcomes.