Section 234D - Levy of Interest when Excess Refund is Returned to the Government

| Last updated: 24 August 2021

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Quick Summary

Section 234D of the Income Tax Act outlines the levy of interest when an excess refund, initially granted under section 143(1), is later found to be excessive during a regular assessment (like under section 143(3)). Taxpayers must return this excess amount along with simple interest at 0.5% per month on the excess refund. This interest is calculated from the date the refund was granted until the date of the regular assessment.

Have you ever been in a situation where you have received a refund and that after assessment under section 143(3) has been proven to be excess and in such situations, you were asked to return the excess refund? If you had noticed properly you would also be asked to return the excess refund along with interest under section 234D. This article helps in simplifying the provisions of section 234D read with rule 119A of the Income Tax Rules

Levy of Interest under section 234D

The taxpayer has received a refund as per intimation received under section 143(1) after filing of return of income. Subsequently, the taxpayer is subject to regular assessment under section 143(3) and it is thereby determined that the taxpayer has received an excess refund. The excess refund received shall be recovered from the taxpayer along with Interest under section 234D.

Section 234D: Interest on Excess Income Tax Refunds

Meaning of Regular Assessment

Regular assessment is an assessment carried out under Section 143(3) under a scrutiny notice issued to the taxpayer. This also includes the best judgement assessment under Section 144. Any assessments made for the first time under Section 147 or 153A will also be treated as regular assessment.

Rate of Interest under section 234D and Period of Imposing such Interest

The taxpayer is liable to pay simple interest at the rate of 0.5 percent on the whole or excess amount so refunded for every month or part of a month comprised in the period from the date of grant of refund under section 143(1) to the date of regular assessment.

Scope for Possible Adjustments

If an order is passed under any of the sections mentioned below, the refund granted under Section 143(1) is held to be correctly allowed, then the interest levied under Section 234D would be adjusted as per the orders:

Section	Description
Section 154	Rectification of mistake
Section 155	Other amendments
Section 250	Order of Commissioner (Appeals)
Section 254	Orders of Appellate Tribunal
Section 260	Judgment of the high court or the Supreme Court
Section 262	Hearing before the Supreme Court
Section 263	Revision of orders prejudicial to revenue by the Commissioner
Section 264	Revision of other orders by Commissioner

Rule 119A - Procedure for Calculating Interest

In calculating the interest payable by the assessee or the interest payable by the Central Government to the assessee under any provision of the Act,

(a)		where interest is to be calculated on annual basis, the period for which such interest is to be calculated shall be rounded off to a whole month or months and for this purpose, any fraction of a month shall be ignored; and the period so rounded off shall be deemed to be the period in respect of which the interest is to be calculated;
(b)		where the interest is to be calculated for every month or part of a month comprised in a period, any fraction of a month shall be deemed to be a full month and the interest shall be so calculated;
(c)		the amount of tax, penalty or other sums in respect of which such interest is to be calculated shall be rounded off to the nearest multiple of one hundred rupees and for this purpose, any fraction of one hundred rupees shall be ignored and the amount so rounded off shall be deemed to be the amount in respect of which the interest is to be calculated.