Explainer · Refund
Income Tax Refund Interest Rate (India, 2026)
When the income tax department refunds excess tax to you, it also pays interest on that refund for the time it held your money. This interest is set by section 244A of the income tax law. This guide explains the rate, the period over which it is calculated, the cases where no interest is paid, and the point many people miss: that the interest you receive on a refund is itself taxable income.
- Rate: 0.5% per month, which is 6% per year, under section 244A.
- On what: the refund amount due to you; the department adds the interest automatically.
- Period: usually from 1 April of the assessment year (if filed on time) to the date the refund is granted.
- Small refunds: no interest if the refund is below the small threshold (generally under 10% of tax determined).
- File on time: a late return can shorten the interest period on your own refund.
- Interest is taxable: report refund interest as income from other sources in the year received.
01The refund interest rate
Under section 244A, interest on an income tax refund is paid at 0.5% per month, or part of a month. That works out to 6% per year.
- Rate: 0.5% per month (6% per annum), simple interest.
- On what: the amount of the refund due to you.
- Who pays it: the income tax department pays it along with the refund; you do not have to claim it separately.
A part of a month counts as a full month, so even a few days into a new month adds a full month of interest in your favour.
02The period the interest runs for
The period depends on what the refund arises from:
| Source of refund | Interest generally runs from |
|---|---|
| Excess TDS, TCS or advance tax, with return filed on time | 1 April of the assessment year to the date the refund is granted |
| Excess TDS, TCS or advance tax, with return filed late | the date of filing the return to the date the refund is granted |
| Self-assessment tax paid by you | the date of payment (or date of filing) to the date the refund is granted |
Filing your return on time matters here too: a late return can shorten the period for which you earn interest on your own refund.
03When no interest is paid
Interest is not always paid on a refund. Common situations where it is reduced or not paid:
- Very small refunds: if the refund is below a small threshold (generally less than 10% of the tax determined), no interest is paid.
- Delay caused by you: if the delay in the refund is attributable to the taxpayer (for example, not responding to the department), that period can be excluded.
- Refund of excess self-assessment tax: interest may run only from a later date, as shown in the table above.
Interest is automatic, but check it
You do not apply for refund interest; the department computes it. But errors happen, so when the refund arrives, check that the interest component looks right for the period your money was held. The refund intimation under section 143(1) usually shows the interest separately.
04A simple example
Suppose your refund is Rs 40,000, it arises from excess TDS, you filed on time, and the refund is granted 8 months after 1 April of the assessment year.
- Interest at 0.5% per month for 8 months is 4% of Rs 40,000.
- That is about Rs 1,600 of interest, paid along with the Rs 40,000 refund.
This is illustrative, to show the method. Your actual interest depends on the exact months and the source of the refund. The department's computation in the refund intimation is the figure that applies.
05Is the refund interest taxable?
Yes. The refund amount itself is your own money coming back and is not taxed again, but the interest paid on the refund is taxable as "income from other sources" in the year you receive it.
- Report the interest in your return for the year it is received.
- It is easy to forget, because it arrives bundled with the refund. The Annual Information Statement (AIS) usually captures it.
- If you are an NRI, the treatment of your income and refunds has its own rules; see the income tax slab for NRIs.
If you want to compare how interest income is treated across different instruments, see also the provident fund return interest rate.
06How Claw Tax helps
Claw Tax and Accounts is an online tax, GST and accounting service for India that connects you with a verified chartered accountant at a fixed, published price, with a Claw reviewer checking every filing before it is submitted.
Refund interest is computed and paid by the department automatically, so there is nothing to apply for. Where help is useful is in two places: filing on time so you earn the full interest period, and remembering to report the interest you receive as taxable income the next year, so you do not get a mismatch notice.
Claw Tax can file your return on time through a verified CA, check that the refund and its interest in the section 143(1) intimation are correct, and carry the refund interest into next year's return so it is reported properly. Because it is online, this is done at a fixed, published price with a Claw reviewer on the filing. See the services and prices at clawlaw.in/tax.
This is general information, not tax advice; a verified CA handles the specifics of your case.
07Frequently asked questions
What is the interest rate on an income tax refund?
Under section 244A, interest on an income tax refund is 0.5% per month, which is 6% per year, calculated as simple interest. A part of a month counts as a full month. The income tax department adds this interest to your refund automatically; you do not need to apply for it separately.
From when is refund interest calculated?
It depends on the source. For a refund of excess TDS, TCS or advance tax where you filed your return on time, interest generally runs from 1 April of the assessment year to the date the refund is granted. If you filed late, it usually runs from the date of filing. For excess self-assessment tax, it generally runs from the date of payment or filing. Filing on time preserves the full interest period.
Is interest always paid on a refund?
No. No interest is paid if the refund is below a small threshold, generally less than 10% of the tax determined. Also, if the delay in issuing the refund is caused by the taxpayer, that period can be excluded. In most ordinary cases, though, the department pays interest automatically and shows it separately in the refund intimation.
Is the interest I receive on a refund taxable?
Yes. The refund itself is your own money returning and is not taxed again, but the interest paid on the refund is taxable as income from other sources in the year you receive it. It is easy to miss because it arrives bundled with the refund, and the Annual Information Statement usually records it, so report it to avoid a mismatch.
How do I check how much refund interest I received?
Look at the intimation issued under section 143(1) after your return is processed, which usually breaks out the refund and the interest separately. You can also see refund details in your e-filing account and the interest reflected in your Annual Information Statement. If the interest looks wrong for the period your money was held, you can raise it with the department.
Can I get more interest if my refund is delayed a long time?
The interest keeps accruing at 0.5% per month until the refund is granted, so a longer delay by the department does increase the interest you receive. However, any part of the delay attributable to you can be excluded. The simplest way to benefit from the full interest period is to file your return on time and respond promptly to any department query.