2. There are provisions for payment of interest to the assessee in case any tax paid by him is to be refunded due to any reason. The necessary provisions with respect to the interest paid by the revenue to the assessee on the income tax refund is contained in section 244A of the Income Tax Act, 1961.

3. The refund of tax in the case of an assessee may arise due to excess payment of advance tax or income not being commensurate with the amount of TDS deducted during the year from the receipts of the said assessee. Sub-section 1 of Section 244A provides for simple interest @ 6% per annum on the amount to be refunded to the assessee. The interest has to be calculated on a monthly basis, as a result, the same amounts to 0.5% per month on the amount of refund which is granted to the assessee.

3. As regards refund arising out of excess advance tax or TDS, there can be two situations:-

1. A situation where the assessee has filed the income tax return within the due date prescribed under Section 139(1) of the Act.

2. The second situation can be where the assessee has filed a belated return.

 In the case of a return filed under section 139(1) i.e. within the due date, the assessee is entitled to interest starting from 1stApril of the said assessment year up to the date of granting of refund. On the contrary, in the case of belated return, the assessee is entitled to interest only from the date of filing of the return and he would lose the benefit of interest for the period 1stApril of the said assessment year to the date of filing of the return.

4. Refund of tax generally does not arise out of self-assessment tax paid under section 140A of the Income Tax Act, 1961 as the same would be deposited only in a situation where the advance tax and TDS are not sufficient to cover the entire liability. Nevertheless, there is provision for payment of interest starting from the date of filing of return or payment of tax (whichever is later) in case a situation arises for refund of tax paid under section 140A of the Act.

   
   

5. The contentious issue arises regarding interest on the regular tax paid by the assessee on account of a disputed demand. Here, again the assessee is entitled to interest in the event of any refund arising on account of a favourable ruling by any Appellate Authority. Section 244A of the Act provides for same interest rate @ 6% per annum on such refund due to the assessee. Obviously, the interest will have to be calculated for the period during which the tax remained with the revenue i.e. for the period starting with the payment of tax and the ultimate refund to the assessee. To ensure that the Department does not delay the issue of refund, Section 244(1A) of the Act provides for an additional interest of 3% per annum over and above the 6% which is allowed to the assessee in case the refund is not issued within three months from the end of the month in which the order entitling the assessee to the refund is received by the Assessing Officer. In other words, if the refund is delayed beyond three months from the end of the month, then the assessee is entitled to an additional 3% per annum as interest on the Income Tax refund. Here, again the interest is to be calculated on a monthly basis.