How to calculate interest on income tax refund?

Wondering how much interest on income tax refund available? The interest rate is 0.5% per month or part of a month, which translates to 6% per annum. The interest is calculated from the date of the end of the financial year in which the tax was paid or from the date of the actual payment of tax, whichever is later, to the date on which the refund is granted.

Income Tax Return Interest Calculation Steps

• Step 1: Determine the amount of refund.

• Step 2: Determine the period for which interest is payable.

• Step 3: Apply the interest rate to the refund amount for the period identified.

Let’s understand interest on it refund calculation with an example.

Example Calculation

Let's assume:

• You filed your tax return for the financial year 2022-23.

• The due date for filing the return was 31st July 2023.

• You filed your return on 15th June 2023.

• The tax department processed your return and granted a refund of INR 10,000 on 15th December 2023.

Steps:

1. Amount of Refund: INR 10,000

2. Period for Interest:

   • The financial year ends on 31st March 2023.

   • Interest period starts from 1st April 2023 to 15th December 2023.

   • Total period = April, May, June, July, August, September, October, November, and part of December (15 days).

From 1st April 2023 to 31st March 2023: No interest as it's before the end of the financial year.

From 1st April 2023 to 15th December 2023: 8 months and 15 days (considering part of the month as a full month for calculation purposes).

Total months=8+1=9 months

Interest=Refund Amount×(6/100)×(9/12)

Interest=10,000×0.06×0.75=450

These steps helped you understand how is interest calculated on tax refund. In this case, the interest payable on the refund amount of INR 10,000 will be INR 450.

I hope you get an idea of how much interest on income tax refund.

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Is Interest on Income Tax Refund Taxable?

 

Wondering

how to calculate income tax refund interest. Here are the complete details.

Typically, if you have paid more tax than what you were liable to pay. The Income Tax Department refunds the excess amount to you. If there is a delay in processing the refund, the taxpayer is entitled to receive interest on the refund amount.

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Calculation:

The interest rate on income tax refunds is determined by the Income Tax Department. The interest is generally calculated from the first day of the assessment year to the date of issuing the refund.

Formula:

Interest=Refund Amount × Interest Rate × Number of Months/12

1. Example:

   Let's say you are entitled to a refund of Rs. 10,000, and the interest rate is 6%. If the refund is issued after a delay of 6 months, the calculation would be as follows:

Interest= (10,000×6%×6)/12

Interest=300

So, the interest on the refund would be Rs. 300.

This is

how to calculate income tax refund interest.

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Hey, I know how to calculate interest on income tax refund, so I will tell you about the interest rate and share an example that will help you make your own interest on income tax refund calculator.

What is the Rate of Interest on Income Tax Refund

The interest rate is levied at 0.50% per month or a part of the month on the refund amount recoverable from a person. The calculation of interest is done from the date of granting the refund until the regular assessment date. Pay Rent using Credit Card via NoBroker & Enjoy Great Rewards! Pay All Your Electricity/Water Bills through NoBroker Stress-free and Get Amazing Cashback!

How is interest computed?

Here are the computation details of the interest payable by the Central Government or the assessee according to Rule 119A: Calculation of Interest on a Monthly Basis: When a person calculates interest for a fraction of the month or a part of the month comprising a period, he needs to calculate the interest considering a full month. Calculation of Interest on an Annual Basis: As mentioned earlier, the period for which interest needs to be calculated will be rounded off to a full month. The calculation of interest for a period will be based on the rounded-off month. Amount of Interest Rounded Off to 100: The interest amount calculated on the excess refund will be rounded off to the closest multiple of 100. Any fraction of ₹100 will not be kept in consideration and the rounded-off amount will be considered payable as an interest. Example Let’s say you have received an excess refund of ₹5660. You are required to ignore any fraction of 100 while computing the refund. So, ₹60 will be ignored and the balance amount will be ₹5600. The calculation of interest will be done on ₹5600. Let’s say you have kept the excess money with you for five months and seventeen days before you paid it to the Income Tax department. Now, the calculation of interest will be done as: five months and seventeen days will be rounded off to six full months The calculation of interest will be done at the rate of 0.50% per month; 0.005 x 5600 x 6 = ₹168 An interest amount that isn’t a multiple of ₹100 will be rounded off to the closest multiple of ₹100. Here, the closest multiple is ₹200 You are required to pay ₹200 as interest for the excess refund. That is, a total amount of ₹5800 needs to be paid back to the Income Tax department. Now you know how to check interest on income tax refund. Read more: Is interest from income tax refund taxable? Is income tax refund taxable? How to claim income tax refund of deceased assessee? If you are not able to find

interest on income tax refund calculator

online, then you can refer to this answer to do the calculation yourself.