Section 234D of ITA, 1961 : Section 234D: Interest On Excess Refund

Explanation using Example

Imagine that Mr. Sharma filed his income tax return for the financial year 2020-21 and claimed a refund of ₹50,000 based on the tax deducted at source (TDS) and his estimated tax liability. The Income Tax Department processed his return quickly and issued a refund of ₹50,000 in July 2021.

However, during the regular assessment of his return, which was completed in December 2022, it was determined that his actual tax liability was such that he was only eligible for a refund of ₹40,000, not the ₹50,000 that was refunded to him.

According to Section 234D of the Income-tax Act, 1961, Mr. Sharma would now be liable to pay simple interest at the rate of one-half percent per month on the excess ₹10,000 refunded to him. The interest would be calculated from the date the refund was granted (July 2021) to the date of the regular assessment (December 2022).