Interest on TDS refund is due from payment date
The Supreme Court’s decision on interest applicable on excessive tax deducted at source should bring relief to many taxpayers who are in line for a tax refund.
If you have received an income tax refund after your employer or client cut more than the TDS amount due, it is time you get back to the refund documents. If your refund amount is more than 10% of the tax paid then you should get interest on your refund amount.
There have been many courtroom battles on the date from which the interest is applicable.
In the case of Tata Chemicals, which got the refund on excessive TDS amount paid without the interest – the Supreme Court this week has held that, “the Government cannot shrug off its apparent obligation to reimburse the deductors’ lawful monies with the accrued interest for the period of undue retention of such monies.”
The court has also mentioned that the interest would be applicable from the date when the tax was paid to the government.
So, if your company has deducted excessive TDS, in the month of March and the money is refunded by December then you should be paid an interest of 0.5% per month for 9 months starting March and not when you actually file your returns (which is usually in July).
The interest payment would be higher if TDS has been deducted in the month of December.
Furthermore, the Government cannot pay the refund first and the interest later. As per the Section 244 A of the Income Tax Act: “The interest is to be granted simultaneously with the refund and there should normally be no reason to grant refund without adding the entitled interest.”
Several courts in the past too have held that “When the delay is not attributable to the assessee but due to the fault of the Revenue Department, then interest should be paid under.”
However, this interest would not be granted if the delay is caused due to the taxpayer and not the department.
If you still need to pay taxes for the current financial year, note that the banks and income tax offices across the country would have counters open for tax collections even on non-working days of March 29, 30 and 31, 2014.