Income Tax Refund: How It Is Claimed, Interest on Refund, Set-Off and Tax on the Interest (Tax Year 2026-27)
CA Meet Dhrangadhariya 
July 15, 2026
CA Meet Dhrangadhariya July 15, 2026
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Last updated: 25 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP
Quick summary
A refund arises when you have paid, or had deducted, more tax than you owe. Chapter XX of the Income-tax Act, 2025 (sections 431 to 438) says who gets it, how it is claimed and what interest is paid. This post covers those rules for tax year 2026-27.
Section 431: where the tax paid by you or on your behalf, or treated as paid by you, for a tax year exceeds the amount with which you are properly chargeable, you are entitled to a refund of the excess. The tax paid includes TDS, TCS, advance tax and self-assessment tax.
If the income of one person is included in another’s total income, only the latter can claim the refund for that income (section 432(1)). If a person cannot claim a refund because of death, incapacity, insolvency or liquidation, his legal representative, trustee, guardian or receiver can claim it for the benefit of the person or the estate (section 432(2)).
Every claim for refund is made by furnishing a return under section 263 (section 433). A salaried person whose employer deducted more tax than needed, a person whose TDS is higher than tax, or a person who paid excess advance tax shows the excess as refund in the return. A return filed late can still claim a refund, subject to the time limits for returns (see our post on belated, revised and updated returns).
The refund is paid after the return is verified and processed. The department credits it to your bank account, so the bank details in your return must be correct. Track the status on the e-filing portal.
The department pays simple interest at 0.5% for every month or part of a month.
| Refund out of | Interest runs |
|---|---|
| TDS, TCS or advance tax paid in the financial year | From 1 April of the year following the tax year to the date of refund, if the return was filed on or before the due date; from the date of filing the return to the date of refund, in any other case |
| Tax paid under section 266 (self-assessment tax) | From the date of the return or of payment of tax, whichever is later, to the date of refund |
| Any other case (tax or penalty paid in excess of a notice of demand) | From the date of excess payment to the date of refund |
No interest is payable on a refund of TDS, TCS, advance tax or self-assessment tax if the refund is less than 10% of the tax determined on processing the return or on regular assessment (section 437(2)).
Example. Tax year 2026-27. Tax on your return is ₹60,000; TDS is ₹80,000, so the refund is ₹20,000, which is 33% of the tax. You file on time, and the refund is credited on 15/09/2027.
If you file after the due date, interest runs only from the date of filing.
Example. The ₹600 interest above is added to your income. At a 30% slab with 4% cess, the tax is 600 × 30% × 1.04 = ₹187.
If an appeal or other proceeding results in a refund, the Assessing Officer must refund it without your making a claim (section 435(1)), except in the cases in the section such as a fresh assessment being directed, where the refund becomes due only when the fresh assessment is made.
Interest at 0.5% a month compensates for delay in paying a refund. Common reasons for delay:
Check the intimation you receive after processing, and respond on the portal if you disagree. If a refund has been issued but not received because of a bank issue, you can ask for it to be re-issued through the portal.
File a return of income under section 263. A claim for refund can be made only by furnishing a return (section 433). If TDS, TCS or advance tax exceeds your liability, the excess is shown as refund in the return.
Simple interest at 0.5% for every month or part of a month (section 437). For refund of TDS, TCS or advance tax, it runs from 1 April of the year after the tax year to the date of refund if you filed on time, or from the date of filing if you filed late.
When the refund is less than 10% of the tax determined on processing the return or on regular assessment (section 437(2)), in the cases of TDS, TCS, advance tax and self-assessment tax refunds.
The refund of tax is not income. The interest you receive on it is taxable as income from other sources, at your slab rate (section 92).
It can set off the refund against any tax still payable under the 1961 Act or the 2025 Act, after giving you written intimation (section 438(1) and (2)). If an assessment is pending it may withhold the refund for up to 60 days from the date the assessment is made, for recorded reasons and with approval (section 438(3)).
The legal representative, trustee, guardian or receiver, for the benefit of the person or his estate (section 432(2)).
This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.
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