Income Tax Act 2025: What are the Refund Rules?

The Income Tax Act 2025 will replace the existing Income Tax Act 1961 from April 1, 2026. While the new framework does not introduce major changes that directly affect taxpayers, it aims to make tax provisions simpler, clearer and easier to comply with.

A key part of the new law is the set of revised sections related to income tax refunds. These sections outline when a refund becomes payable, how it is processed and how interest on delayed refunds is calculated.

Sections Covering Income Tax Refunds

Refund-related provisions, previously located under Sections 237 to 245 of the Income Tax Act 1961, have been reorganised under the new legislation. The updated Sections 431 to 438 now govern refund rules, detailing eligibility criteria, timelines, procedures and interest calculations.

This restructuring is intended to improve clarity for taxpayers. It also aims to streamline compliance across the refund process.

When does a Taxpayer Become Eligible for a Refund?

Section 433 of the Income Tax Act 2025 specifies that a refund claim must be submitted through an income tax return. Section 431 further sets out the eligibility criteria, stating that a refund is due when the total tax paid by the taxpayer exceeds the actual tax liability for that year. The tax paid may include TDS, advance tax or self-assessment tax.

Is Interest Payable on Delayed Refunds?

Yes, the new tax law includes provisions for interest on delayed refunds. Under Section 437(1), interest is payable at 0.5% per month or part of a month. This interest is calculated on the refund amount. It is paid in addition to the refund itself.

The provision states, “Where a refund is due to the assessee under this Act, he shall, subject to the provisions of this section, be entitled to receive, in addition to the refund, simple interest thereon calculated at the rate of 0.5% for every month or part of a month…”. This ensures that taxpayers receive compensation for delays in processing refunds.

Read More: India's Net Direct Tax Collections Rise 7% to ₹12.92 Lakh Crore.

Conclusion

The Income Tax Act 2025 modernises and restructures refund provisions to help taxpayers understand their rights more clearly. Sections 431 to 438 define the eligibility criteria for refunds, the procedure for filing claims and the interest applicable on delayed payments.

With interest fixed at 0.5% per month and the new rules effective from April 1, 2026, the framework is designed to ensure greater transparency. Overall, it aims to bring more consistency and clarity to the refund process.

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