33% more money on tax refund interest this year for income taxpayers due to ITR filing deadline extension

Time of India

4 days ago

The Income Tax Department has extended the due date for
Income Tax Return (ITR)
filing from July 31, 2025, to September 15, 2025. However, there is an unintended consequence of ITR filing deadline extension by income tax department for FY 2024-25 (AY 2025-26). This deadline extension may result in higher interest payout for many people claiming income tax refund this year including both Indian and NRI taxpayers.
Taxpayers can claim an income tax refund in their ITR, when their income tax liability is lower than the tax amount already deposited by them through TDS deduction, advance tax, etc. Under Section 244A, the income tax department has to pay simple interest of 0.5% interest on the whole or the excess amount of tax refund so refunded, for every month or part of a month. However, one has to remember that this interest on tax refund is taxable as income from other sources in the relevant year of earning. Many taxpayers won't mind this increased income as this income may still remain tax-free for them. This is because from FY 2025-26 (AY 2026-27), non-salaried and salaried individuals can enjoy completely tax-free income for levels up to Rs 12 lakh and Rs 12.75 lakh respectively due to increased Section 87A tax rebate.
How can taxpayers get extra tax refund interest due to ITR filing deadline being extended to September 15, 2025
S. Sriram, Partner, Lakshmikumaran and Sridharan attorneys, says: 'Though the due date is extended till September 15, 2025, if the tax-payer files the return by July 31, 2025, the CPC can process the return immediately and grant the tax refund. But the delay in filing of return by taxpayers till September 15, 2025 will certainly entitle them additional interest, till the time the income tax return so filed, is processed by the Centralised Processing Centre.'
Sriram adds: 'Granting of refund of taxes is not dependent upon the due date for filing of tax returns, but actual filing of return by the taxpayer, and the processing of return by the CPC.'
Chartered Accountant (Dr.) Suresh Surana agrees with Sriram and adds: 'In furtherance to the press release dated 27th May 2025, the CBDT has issued Circular No. 6 of 2025, also dated 27 May, 2025, clarifying that the due date for filing an ITR under Section 139(1) stands extended from July 31, 2025 to 15 September 15, 2025. Accordingly, when an assessee furnishes their ITR on or before 15th September 2025, such ITR will be treated as filed within the time allowed under Section 139(1). As a result, interest under Section 244A on eligible tax refund amounts will be payable from April 1, 2025, even if the ITR is furnished after July 31, 2025 but within the extended due date of September 15, 2025.
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'Delay in releasing utility means delay in ITR filing, resulting in delay in refund. All the refunds which are being stuck will get delayed. Also, the government will have a huge bill of paying additional interest on tax refunds, which will be funded again by the taxpayer's money,' says Chartered Accountant Chirag Chauhan.
Also read:
ITR filing last date extended from July 31, 2025, for FY 2024-25 (AY 2025-26): Check the new date here
How much extra money can taxpayers get due to the ITR deadline extension for FY 2024-25?
For this calculation we have taken five possible scenarios and assumed that the taxpayer filed his/her ITR on September 15, 2025, and e-verified it. There is also another assumption which is that the tax refund is out of TDS deducted on the income. Interest on the tax refunds is also assumed to be paid by September 30, 2025:
Scenario Tax Refund Interest @0.5% per month from 01st April till September 30, 2025 Interest @0.5% per month from 01st April till July 31, 2025
Scenario
Tax Refund (in INR)
Interest@0.5% per month from April 1, 2025 till July 31, 2025 (in INR)
Interest@0.5% per month from April 1, 2025 till September 30, 2025 (in INR)
A
25,000
500
750
B
50,000
1000
1500
C
1,00,000
2000
3000
D
1,50,000
3000
4500
E
2,00,000
4000
6000
Source:
Chartered Accountant (Dr.) Suresh Surana
If we calculate the extra percentage of tax refunds on account of interest, then it comes to be 33% in each case. With the previous deadline of 31 July a taxpayer, who is eligible for Rs 25000 tax refund and filed ITR by July 15, would have received an interest amount of Rs 500 if refund was processed on July 31. However, due to deadline extension if he now files the ITR by September 15 and refund is processed on September 31 he would now receive Rs 750 as interest on this refund amount of Rs 25,000, which is 33% more than Rs 500.
Interest given on tax refund amount is taxable for all taxpayers
According to Surana, 'Interest received on income tax refund is taxable in the hands of all categories of taxpayers. Such 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, irrespective of the assessment year to which the refund pertains. Accordingly, taxpayers are required to report this interest income in their ITR and discharge the applicable tax liability thereon.'
This means that the interest granted on tax refund amount is taxable for FY 2025-26 (AY 2026-27). For FY 2025-26 (AY 2026-27), taxpayers can enjoy up to Rs 12 lakh completely tax free due to application of enhanced limit of Section 87A tax rebate. This will result in many taxpayers being eligible to pay no income tax on the interest amount that they receive with their income tax refund.
Manmeet Kaur, Partner at Karanjawala & Co, explains how interest on tax refund is computed. "Till the tax refund amount is refunded, the Income Tax Department shall pay interest over and above this amount that is to be refunded. This component of interest on income tax refund is computed from the date of filing of income tax returns. In case the return is filed on or before the due date, interest begins to be computed from 1st April of the Assessment Year till the grant of refund. If the return is filed after the due date, the interest shall be computed from the date of return filing to the date of grant of refund. Section 244A of the Income Tax Act, 1961 provides for the modalities and computation of interest payments to taxpayers on the refund amount pending after filing of ITR. Therefore, the interest on refund may be dependent upon verification of the income tax refund claimed by the taxpayer by the Income Tax Department, and the extension of due date might or might not matter at all."