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The extension of the Income Tax Return (ITR) filing deadline for Assessment Year 2025-26 from July 31 to September 15, 2025, has brought to the forefront the potential implications for both taxpayers and the government's interest liability on tax refunds. This article delves into the intricacies of refund-related interest under Section 244A of the Income Tax Act, examining the potential financial burden on the government and the benefits, or lack thereof, for taxpayers. Experts weighed in on the matter, providing a comprehensive overview of the situation. Shalini Jain, Tax Partner at EY India, highlighted that the extended deadline might lead to increased interest payments on tax refunds in certain scenarios. Specifically, cases where excess Tax Deducted at Source (TDS) has been deducted or taxpayers have paid excess advance tax during the Financial Year (FY) could result in the government paying more interest. According to Section 244A(1)(a) of the Income-tax Act, 1961, taxpayers are eligible to receive interest on the refund amount at a rate of 0.5% per month or part of a month, calculated from April 1 of the Assessment Year (April 1, 2025, for AY 2025-26) until the date the refund is granted. However, Jain clarified that this interest is only payable if the refund exceeds 10% of the assessed tax liability. Despite the potential for increased interest liability, Jain also noted a practical benefit for the government. The extended time allows the government to better prepare its systems for additional changes in the income tax return forms and to accurately capture information from TDS/TCS statements filed by tax deductors/collectors. This, in turn, could lead to a smoother and more convenient filing experience for taxpayers. Ritika Nayyar, Partner at Singhania & Co., corroborated the notion that the government would need to compensate taxpayers for the extra months that their refunds are delayed due to the extension. She further explained that interest on refunds is calculated at 0.5% per month or part thereof under Section 244A. If the return is filed on or before the due date, interest is calculated from April 1 of the assessment year until the refund is granted. To illustrate the impact of the extended deadline on payouts, Abhishek Soni, CEO and Co-founder of Tax2Win, presented various scenarios. In one scenario, a refund of Rs 1,00,000 processed on September 16, 2025, after filing on September 15, 2025, would accrue interest of Rs 3,000. Extending the processing date to October 3, 2025, would increase the interest to Rs 3,500. These examples highlight how longer refund windows directly translate into higher interest payouts, ultimately increasing costs for the Income Tax Department. CA Shefali Mundra, Tax Expert at ClearTax, further clarified that if the return is filed on or before the due date under Section 139(1), interest begins from April 1 of the assessment year until the date of grant of refund. However, if the return is filed after the due date under Section 139(1), interest begins from the date of return filing to the date of grant of refund. Nayyar emphasized that interest is payable only if the refund results from excess payment of TDS, TCS, or advance tax and exceeds 10% of the total tax liability. The extra interest due to the extended deadline will be borne by the Government of India, specifically the Income Tax Department.
Despite the potential for increased interest accrual periods, the consensus among experts is that delaying returns does not provide major benefits to taxpayers. Ankit Jain, Partner at Ved Jain and Associates, argued that there is no significant advantage to delaying the tax return filing since the government pays interest at a rate of approximately 6% per annum, which is comparable to, if not lower than, the interest rates offered by banks. Jain illustrated that while filing closer to the deadline might result in slightly more interest, the difference is often marginal. In his example, a refund of Rs 1,00,000 filed on September 15 and processed on October 3 would earn Rs 3,500 in interest, compared to Rs 2,000 if filed on July 31 and processed on August 18. The difference of Rs 1,500 hardly justifies the delay. Furthermore, he pointed out that the cost to the government is not excessively burdensome as the coupon rate of government borrowing is similar to the interest rate paid on refunds. Other tax professionals echoed this sentiment, suggesting that while the extension increases interest outflow, it is not alarming. Ashish Karundia, Founder of Ashish Karundia & Co., Chartered Accountants, clarified that the extension does not increase the interest rate itself but simply extends the period for which interest is calculated. He emphasized that the government's liability is limited due to the conservative 6% per annum interest rate, which is aligned with the cost of government borrowings. S. Sriram, Partner at Lakshmikumaran & Sridharan Attorneys, argued that refunds are more dependent on the actual filing and processing of returns than on deadlines. He asserted that if a return is filed by July 31, the Central Processing Center (CPC) can process it earlier and grant the refund more quickly. Filing late, even within the extended deadline, would delay refund processing and result in longer interest periods, which the government would then have to finance. Despite efforts to expedite ITR processing, challenges persist. Karundia suggested that the government might consider accelerating processing at the CPC to mitigate the potential rise in interest liability. However, he also noted that refund timelines depend on various factors, including the complexity of the ITR form, the nature of income, the taxpayer's risk profile, claims made, and cross-verification with third-party data. These factors can significantly impact processing times.
Aarti Raote, Partner at Deloitte India, highlighted the importance of considering interest under Sections 234A and 234B. While the extension waives 234A interest (for delayed return filing), taxpayers remain liable under 234B if they failed to pay sufficient advance tax. Raote emphasized that from a government perspective, delayed processing means delayed scrutiny and an overall delay in the process. The government also pays interest, which starts from the date of filing the tax return. Abhishek Soni, CEO and Co-founder of Tax2Win, stated that the extension of the ITR filing deadline does not increase the interest paid by the government on tax refunds, so long as the return is filed by the extended deadline. The interest continues to be calculated from April 1, 2025, up to the date the refund is issued. However, if the return is filed after the deadline, the interest amount may be reduced. Ultimately, while the extension provides relief to those needing more time to file, tax professionals universally recommend filing early. CA Shefali Mundra, Tax Expert at ClearTax, emphasized that while the ITR filing deadline extension provides taxpayers with additional time to file their returns, it also results in a longer waiting period for refunds. Consequently, eligible taxpayers will accrue more interest on their refunds due to the extended processing time. Therefore, taxpayers should file their returns promptly once filing is live to expedite the refund process and receive their refunds as soon as possible. The consensus is clear: prioritize early filing to minimize delays and ensure timely receipt of tax refunds, despite the allure of potentially marginally higher interest earnings by filing closer to the extended deadline. The government, while facing a potentially increased interest burden, benefits from a smoother and more accurate processing system due to the extended timeframe.
The detailed analysis from various experts highlights a nuanced understanding of the implications of extending the ITR filing deadline. While the government may face a slightly increased interest burden on tax refunds, this is offset by the opportunity to improve processing accuracy and system readiness. Taxpayers, on the other hand, are advised to prioritize early filing to avoid delays in receiving their refunds, as the marginal increase in interest earned by delaying filing is often outweighed by the benefits of receiving the refund sooner. The extension does not fundamentally alter the mechanics of interest calculation, but rather extends the period over which it is calculated, provided the return is filed by the extended deadline. The factors affecting refund processing times remain complex and multifaceted, influenced by the nature of income, taxpayer risk profile, and the thoroughness of verification processes. Despite the challenges in streamlining the refund process, the government continues to strive for efficiency and accuracy in handling tax returns. Ultimately, the extension of the ITR filing deadline serves as a reminder of the importance of understanding the intricacies of tax laws and the potential implications of filing decisions. Taxpayers are encouraged to consult with tax professionals to ensure compliance and optimize their tax outcomes. The ongoing dialogue between tax experts, the government, and taxpayers is essential for fostering a transparent and efficient tax system that benefits all stakeholders. This collaboration ensures that the system is responsive to the evolving needs of taxpayers while maintaining the integrity of tax collection and refund processes. By understanding the nuances of interest calculations, filing deadlines, and processing procedures, taxpayers can make informed decisions and contribute to a more efficient and equitable tax system.