Key Highlights
- Refund arises when: advance tax + TDS + self-assessment tax > tax liability
- Interest on refund: 0.5% per month on refund amount — Section 296
- Refund credited directly to bank account (Aadhaar/PAN linked)
- Claim refund by filing ITR within the due date — belated ITR refund: no interest for delay period
- Refund adjustment: IT Department can adjust refund against pending tax demands (Section 297)
- Most refunds processed within 20-45 days of ITR verification
Legal Reference
Section 295 (refund), Section 296 (interest on refund), Section 297 (refund adjustment), ITA 2025 | Corresponds to Sections 237-241 of ITA 1961
1. How a Tax Refund Arises
A tax refund is the excess of taxes paid over actual tax liability for a Tax Year:
- TDS: Employer deducts more TDS than needed (common in early months of year)
- Advance tax: Paid in instalments based on estimated income which was higher than actual
- TDS on FD interest: Bank deducts 10% TDS but actual slab rate is lower
- TCS credits: TCS collected on foreign remittance, vehicle purchase credited against lower actual liability
2. How to Claim a Refund
- File your ITR on the Income Tax Portal — ensure all TDS/advance tax credits in Form 26AS are captured
- Verify your ITR using Aadhaar OTP, net banking, or DSC within 30 days of filing
- Ensure bank account is pre-validated and PAN-linked on the IT Portal
- Refund is credited directly to the bank account after processing
3. Interest on Delayed Refund: Section 296
If the IT Department delays your refund beyond the normal processing period, interest at 0.5% per month is paid on the refund amount:
- For refunds arising from TDS: interest from 1 April of assessment year (if ITR filed before due date)
- For refunds arising from late ITR filing: interest from date of ITR filing
- No minimum interest if refund is processed within 3 months of filing
4. Why Refunds Get Delayed
- Bank account not pre-validated or PAN not linked to bank account
- Mismatch between ITR income and AIS data — pending verification
- ITR not e-verified within 30 days of filing
- Outstanding demand from previous years — refund adjusted against old demand (Section 297)
- ITR selected for scrutiny assessment
5. Refund Adjustment (Section 297)
The IT Department can adjust your current year refund against any outstanding tax demand from previous years without prior notice. However, the taxpayer must be informed after adjustment. If you believe the old demand is wrong, file a rectification or an appeal for the disputed demand before the adjustment happens — once adjusted, recovering the amount becomes more complex.
6. Why TaxClue
Maximising refunds and avoiding delays requires correct ITR filing, complete TDS credit capture, and bank account validation. TaxClue ensures all TDS/advance tax credits are properly claimed in your ITR for fastest possible refunds. Contact us for Tax Year 2026-27 ITR filing and refund tracking.
Disclaimer
This article is for general informational and educational purposes only. It does not constitute legal, financial, or professional tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any decisions. TaxClue Consultech Pvt Ltd accepts no liability. All case studies and examples in this article are illustrative only and do not represent actual persons or transactions.
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❓ Frequently Asked Questions
How do I claim an income tax refund?
To claim an income tax refund, file your ITR on the Income Tax Portal before the due date (31 July for non-audit). Ensure all TDS from Form 26AS/AIS is captured in the correct schedules. e-Verify the ITR within 30 days of filing using Aadhaar OTP, net banking, or DSC. Ensure your bank account is pre-validated and PAN-linked on the portal. The refund is credited directly to your bank account, usually within 20-45 days of filing for straightforward returns.
Do I get interest on a delayed income tax refund?
Yes. Under Section 296 of the Income Tax Act, 2025, the IT Department pays interest at 0.5% per month on refunds that are delayed beyond the normal processing period. For TDS refunds on ITR filed before the due date, interest runs from 1 April of the assessment year. For refunds from late-filed returns, interest runs from the date of filing. No interest is paid for the first 3 months after ITR filing if the refund is processed within that period.
Why is my income tax refund delayed?
Common reasons for refund delays include: bank account not pre-validated or not PAN-linked on the IT Portal; mismatch between ITR income and AIS data requiring manual verification; ITR not e-verified within 30 days of filing (unverified ITRs are invalid); outstanding tax demand from previous years causing refund adjustment; or ITR being selected for scrutiny assessment. Checking the ITR status on the IT Portal and resolving any pending actions quickly usually resolves delays.
Can the IT Department withhold my refund against old demands?
Yes. Under Section 297 of ITA 2025, the IT Department can adjust (withhold) your current year refund against any outstanding tax demand from previous years. You will be informed after the adjustment. If you believe the old demand is incorrect, file a rectification request or appeal for that specific year before the adjustment is made. Once the refund is adjusted, recovering it requires resolving the underlying demand dispute.
What should I do if my refund is not received after 60 days?
If you have not received your refund 60 days after e-filing and e-verifying, first check the ITR status on the Income Tax Portal under View e-Filed Returns. Check for any email or portal notifications about processing issues or demands. Verify that your bank account is pre-validated and PAN-linked. If no specific issue is shown, you can raise a grievance through the IT Portal Grievance mechanism. For large refunds under scrutiny, the timeline is longer.
