Income Tax Refund: How to Claim, Time Limit and Interest (Income Tax Act 2025)

A refund arises when the tax you paid, or that was paid on your behalf, is more than the tax you are properly chargeable with for the year. Under section 431 of the Income-tax Act, 2025, you are entitled to the excess. You claim it by filing a return of income (section 433), and the department pays simple interest at 0.5% per month on the refund for the period set in section 437. This guide covers who can claim, the return deadlines that matter, how interest is counted, and when a refund can be set off or withheld. The text is as amended by the Finance Act, 2026, last reviewed on 10 November 2026.

Who is entitled to an income tax refund?

Section 431 gives a refund to any person who satisfies the Assessing Officer that tax paid by them, or on their behalf, or treated as paid, for a tax year is more than the amount they are properly chargeable with under the Act. "Tax paid on your behalf" includes TDS deducted from your salary or interest and tax collected at source. Section 390(5) is the provision under which tax deducted or collected at source and paid to the Central Government is credited.

Two special cases are in section 432:

• Clubbed income (section 432(1)). Where one person's income is included in another person's total income, only the latter is eligible for the refund on that income.
• Death, incapacity, insolvency, liquidation or other cause (section 432(2)). The legal representative, trustee, guardian or receiver can claim or receive the refund for the benefit of the person or the estate.

How do I claim a refund and what is the time limit?

Section 433 is one line: every refund claim is made by furnishing a return under section 263. The Act does not set a separate refund deadline. The practical limit is how long you can still file a return that carries the claim. The table below is from section 263.

Return	Time allowed	Provision
On-time return, any other assessee	31 July after the tax year	263(1)(c), Table Sl. No. 4
Business or profession, accounts not audited, where section 172 does not apply	31 August	263(1)(c), Sl. No. 3
Company, or assessee (or firm partner) whose accounts must be audited, where section 172 does not apply	31 October	263(1)(c), Sl. No. 2
Where section 172 applies (international or specified domestic transactions needing an accountant's report)	30 November	263(1)(c), Sl. No. 1
Late (belated) return	Within nine months from the end of the tax year, or before assessment is complete, whichever is earlier	263(4)
Revised return (to fix an omission or wrong statement)	Within twelve months from the end of the tax year, or before assessment is complete, whichever is earlier	263(5)
Updated return	Within 48 months from the end of the financial year following the tax year	263(6)(a)

An updated return cannot be used to get a refund where none was due, or to increase a refund already shown (section 263(6)(c)(iii)). If you missed claiming a refund, the late return and revised return windows are the ones to use. Filing on time also decides which interest period applies, as the next section shows.

How much interest is paid on an income tax refund?

Section 437(1) gives simple interest at 0.5% for every month or part of a month. The start date depends on where the refund came from.

Refund is out of	Interest runs from	Until
TCS (section 394), advance tax, or tax treated as paid under section 390(5), and the return was filed on or before the due date (Sl. No. 1(a))	1 April of the year following the tax year	Date refund is granted
Same sources, return filed in any other case (Sl. No. 1(b))	Date of furnishing the return	Date refund is granted
Self-assessment tax under section 266 (Sl. No. 2)	Date of furnishing the return or payment of tax, whichever is later	Date refund is granted
Any other case, such as tax or penalty paid in excess of a demand under section 289 (Sl. No. 3)	Date(s) the excess was paid	Date refund is granted

Other interest rules in section 437:

• The 10% floor (section 437(2)). For Sl. No. 1 and 2 refunds, no interest is paid if the refund is less than 10% of the tax determined under section 270(1) or on regular assessment.
• Rectification (section 437(3)). Where a Sl. No. 1 refund arises from an order on your application under section 288(1) (Table Sl. No. 11), interest runs at 0.5% per month from the date of your application.
• Additional 3% per annum (section 437(4)). Where a refund arises from giving effect to an order under section 359, 363, 365(10), 368, 377 or 378 without a fresh assessment, you get an extra 3% a year on the refund. It runs from the day after the time allowed under section 286(1) (Table Sl. Nos. 9 and 10) expires, until the refund is granted.
• Deductors (section 437(6)). A deductor who is owed a refund of tax paid to the Central Government gets 0.5% per month from the date of the refund claim, or from the date of payment where the refund follows one of the orders in section 359, 363, 365(10) or 368. Under rule 219(6), the deductor makes that claim in Form No. 139.
• Delay caused by you (section 437(7), (8)). Any period of delay attributable to the assessee or deductor is excluded. A Chief Commissioner or Commissioner level officer decides disputes over the excluded period, and that decision is final.
• Interest follows the order (section 437(9) to (11)). If a later order changes the refund, the interest is raised or cut to match. If interest is cut, the Assessing Officer serves a notice of demand for the excess, treated as a notice under section 289.

Worked examples with interest

Example 1: salaried taxpayer, return filed on time (tax year 2026-27)

Assumptions: Ravi's tax for the year is Rs 1,10,000. TDS and advance tax paid total Rs 1,40,000. He files on 20 July 2027, before 31 July 2027. The refund is granted on 31 October 2027.

Step	Working	Result
1. Refund	1,40,000 - 1,10,000	Rs 30,000
2. 10% floor check	10% of 1,10,000 = 11,000. 30,000 is not less than 11,000	Interest payable
3. Period (Sl. No. 1(a))	1 April 2027 to 31 October 2027	7 months
4. Interest	30,000 x 0.5% x 7	Rs 1,050
5. Total received	30,000 + 1,050	Rs 31,050

Example 2: late return, refund of tax already deducted

Assumptions: Meena is a salaried employee for tax year 2026-27 and misses 31 July 2027. Her tax is Rs 1,00,000 and TDS was Rs 1,18,000. She files a belated return on 10 November 2027, within the nine-month window of section 263(4). The refund is granted on 28 February 2028.

Step	Working	Result
1. Refund	1,18,000 - 1,00,000	Rs 18,000
2. 10% floor check	10% of 1,00,000 = 10,000. 18,000 is not less than 10,000	Interest payable
3. Period (Sl. No. 1(b))	10 November 2027 to 28 February 2028, counting November, December, January and February as part or full months	4 months
4. Interest	18,000 x 0.5% x 4	Rs 360

Had Meena filed on time, interest would have started on 1 April 2027 instead of the filing date.

Example 3: refund too small for interest

Assumptions: tax determined is Rs 1,00,000. Advance tax and TDS paid are Rs 1,08,000, so the refund is Rs 8,000. The floor is 10% of 1,00,000 = Rs 10,000. Since 8,000 is less than 10,000, section 437(2) means no interest is paid. Only the Rs 8,000 comes back.

Real-life situations

• Anil's father passes away. A refund for the father's last year was never claimed. Under section 432(2), Anil, as legal representative, can claim and receive it for the estate.
• Neha's income is clubbed with her husband's. Income earned in her name is included in his total income under the Act. Under section 432(1), the refund on that income goes to him alone.
• Suresh wins an appeal. The appellate order leaves a refund due. Section 435(1) says the Assessing Officer refunds it without Suresh having to apply. If the order sets aside an assessment and directs a fresh one, the refund becomes due only when the fresh assessment is made (section 435(2)(a)). If the assessment is annulled, only tax paid in excess of the tax on the income he returned is refundable (section 435(2)(b)).
• Kavita has an old demand. A refund is due to her while a demand is still outstanding. Under section 438(1), the authority can set the refund off against that demand, after giving her written intimation under section 438(2).

Can a refund be withheld while an assessment is pending?

Yes, within limits. Section 438(3) lets the Assessing Officer, for reasons recorded in writing and with the previous approval of the Principal Commissioner or Commissioner, withhold the refund up to sixty days from the date on which the pending assessment or reassessment is made. Under section 437(5), that withheld period is excluded when counting the additional 3% interest of section 437(4).

What about refunds for tax years before 2026-27?

Section 536(2)(g) deals with proceedings for a tax year beginning before 1 April 2026. If the refund falls due on or after 1 April 2026, the interest provisions of the repealed Act apply for the period from that date, but with the interest rate substituted by the rate in the corresponding provision of this Act. The substitution applies from the date the rate was changed under this Act. For such older years, ask your chartered accountant which period each portion of interest falls in.

Can I use a refund claim to reopen a settled assessment?

No. Section 436 says that in a refund claim you cannot question the correctness of an assessment or other matter that has become final, or ask for it to be reviewed. The only relief on such a claim is a refund of tax wrongly paid or paid in excess.

Common mistakes

• Assuming a refund needs its own form. The claim is the return (section 433).
• Missing the due date and losing months of interest. A late return moves the start from 1 April to the filing date for TDS, TCS and advance tax refunds.
• Relying on an updated return to add a refund. Section 263(6)(c)(iii) bars it where it creates or increases a refund.
• Expecting interest on a small refund. Below 10% of the determined tax, none is paid on Sl. No. 1 and 2 refunds.
• Ignoring pending demands. A refund can be set off against them under section 438.
• Claiming a refund for clubbed income. Only the person in whose total income it is included can claim.

Quick reference

Item	Rule	Where
Interest rate	0.5% per month or part of a month, simple	437(1)
No interest if refund is below	10% of tax determined	437(2)
Extra interest after certain orders	3% per annum	437(4)
Withholding on pending assessment	Up to 60 days from assessment	438(3)
Belated return window	9 months from end of tax year	263(4)
Revised return window	12 months from end of tax year	263(5)

How CA firms keep refund follow-ups on track

For a practice with many clients, refunds are a tracking problem: which returns are filed, which refunds are due, and which clients have an old demand that may trigger a set-off. Finexo's practice management software can hold these as client tasks with due dates. It does not file returns or compute refunds for you. For the related deduction side, see our guide to TDS on rent under the Income Tax Act 2025.

Where this is in the Act

• Section 431: right to refund of excess tax
• Section 432: refund in special cases (clubbed income, death, incapacity)
• Section 433: claim by return under section 263
• Section 435: refund on appeal, without a claim
• Section 436: correctness of assessment not to be questioned
• Section 437: interest on refunds
• Section 438: set-off and withholding of refunds
• Section 263: return of income, due dates and late, revised and updated returns

This article is general information based on the Act as amended by the Finance Act, 2026. It is not tax advice. Check your facts with a chartered accountant or tax consultant.