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The extension of the Income Tax Return (ITR) filing deadline for the financial year 2024-25 (assessment year 2025-26) from July 31, 2025, to September 15, 2025, by the Income Tax Department has created an unexpected advantage for taxpayers expecting refunds. This extension, while intended to provide taxpayers with additional time to comply with their filing obligations, inadvertently leads to a higher interest payout on tax refunds. This situation benefits both Indian and Non-Resident Indian (NRI) taxpayers who are eligible for a refund. Taxpayers are entitled to claim an income tax refund when the tax they have already paid through mechanisms like Tax Deducted at Source (TDS) and advance tax exceeds their actual income tax liability for the financial year. According to Section 244A of the Income Tax Act, the Income Tax Department is obligated to pay simple interest on the excess amount of tax refunded. This interest is calculated at a rate of 0.5% per month or part of a month, effectively compensating taxpayers for the period during which the department held their excess funds. However, it is crucial to note that the interest earned on tax refunds is considered taxable income under the head 'Income from Other Sources' in the year it is received. This means that taxpayers must declare this interest income in their ITR and pay applicable taxes on it. Despite the tax implications, many taxpayers may find the increased interest income appealing, especially given the potential for it to remain tax-free due to increased tax rebates. From FY 2025-26 (AY 2026-27), non-salaried and salaried individuals can potentially enjoy completely tax-free income up to Rs 12 lakh and Rs 12.75 lakh respectively, thanks to enhanced Section 87A tax rebate. This could offset the tax liability on the refund interest, making it a net positive for many taxpayers. S. Sriram, a Partner at Lakshmikumaran and Sridharan attorneys, clarifies that while the deadline is extended to September 15, 2025, taxpayers who file their returns by July 31, 2025, can still have their returns processed immediately by the Centralised Processing Centre (CPC) and receive their tax refunds promptly. However, delaying the filing until September 15, 2025, will guarantee additional interest until the filed income tax return is processed by the CPC. This emphasizes the importance of timely filing, even within the extended deadline, to maximize the benefits of the interest accrual.
Sriram further emphasizes that the granting of tax refunds is contingent on the actual filing of the return by the taxpayer and its subsequent processing by the CPC, rather than being solely dependent on the due date for filing tax returns. This highlights the importance of actively engaging with the filing process to initiate the refund mechanism. Chartered Accountant (Dr.) Suresh Surana corroborates Sriram's view and refers to Circular No. 6 of 2025, issued by the Central Board of Direct Taxes (CBDT) on May 27, 2025, which officially extends the ITR filing due date under Section 139(1) from July 31, 2025, to September 15, 2025. This clarification reinforces the legal basis for the extended deadline and its implications for interest calculation. Surana explains that an ITR furnished on or before September 15, 2025, will be treated as filed within the time allowed under Section 139(1). Consequently, interest under Section 244A on eligible tax refund amounts will be payable from April 1, 2025, even if the ITR is filed after July 31, 2025, but within the extended due date. This provision ensures that taxpayers who take advantage of the extended deadline are not penalized in terms of interest accrual. However, Chartered Accountant Chirag Chauhan raises concerns about potential delays in the refund process due to the extended deadline. He suggests that delays in releasing utility, which are essential for ITR filing, could lead to overall delays in filing and subsequently, in the processing of refunds. This could result in a backlog of refunds and an increased interest burden for the government, ultimately funded by taxpayers' money. Chauhan's perspective highlights the potential logistical challenges associated with the extended deadline and its impact on the efficiency of the refund system. The article presents several scenarios illustrating the impact of the extended deadline on interest payouts. These scenarios demonstrate how different tax refund amounts would accrue varying levels of interest depending on whether the ITR is filed by July 31, 2025, or September 15, 2025.
For example, a taxpayer eligible for a Rs 25,000 tax refund would receive Rs 500 in interest if the ITR was filed by July 31 and the refund was processed by July 31. However, if the same taxpayer files the ITR by September 15 and the refund is processed by September 30, they would receive Rs 750 in interest, which represents a 33% increase. These examples underscore the financial advantage gained by taxpayers who utilize the extended deadline. Surana reiterates that the interest received on income tax refunds is taxable in the hands of all categories of taxpayers. This interest is granted under Section 244A and is chargeable to tax under the head 'Income from Other Sources' in the year in which it is actually received, regardless of the assessment year to which the refund pertains. Therefore, taxpayers are required to report this interest income in their ITR and pay the applicable tax liability on it. This clarification emphasizes the importance of accurately reporting interest income to avoid any potential penalties or discrepancies with the Income Tax Department. Manmeet Kaur, a Partner at Karanjawala & Co, provides a detailed explanation of how interest on tax refunds is computed. She states that the Income Tax Department shall pay interest on the tax refund amount until it is actually refunded. The computation of this interest begins from the date of filing income tax returns. If the return is filed on or before the due date, interest starts accruing from April 1 of the Assessment Year until the refund is granted. However, if the return is filed after the due date, interest is calculated from the date of return filing to the date of grant of refund. Kaur emphasizes that Section 244A of the Income Tax Act, 1961, outlines the procedures and calculations for interest payments on pending refund amounts after ITR filing. Therefore, the interest on refund may depend on the verification of the income tax refund claimed by the taxpayer by the Income Tax Department, and the extension of the due date might or might not matter at all.
In conclusion, the extension of the ITR filing deadline to September 15, 2025, offers taxpayers an opportunity to earn additional interest on their tax refunds. While the interest income is taxable, many taxpayers may still benefit due to increased tax rebates. Taxpayers should consider the potential benefits and drawbacks of utilizing the extended deadline and ensure they accurately report any interest income earned on their tax refunds to avoid potential penalties. The extension provides taxpayers with a small but notable financial benefit, illustrating how tax policy adjustments can have unintended but positive consequences for individuals. The complexities of tax laws and their interactions highlight the importance of staying informed and seeking professional advice when needed to navigate the tax system effectively. The article effectively combines expert opinions, concrete examples, and legislative references to present a comprehensive overview of the impact of the ITR filing deadline extension on tax refunds and interest payments. The analysis provides taxpayers with valuable insights to make informed decisions about their tax planning and compliance. The 33% increase in interest on tax refunds is a compelling reason for taxpayers to consider delaying their filing until closer to the extended deadline, especially if they anticipate a refund. However, taxpayers should also weigh the potential for delays in the refund processing due to increased volume and ensure they have all the necessary documents and information to file accurately and efficiently. The article serves as a valuable resource for taxpayers seeking to understand the implications of the ITR filing deadline extension and to maximize their tax benefits.