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NEW DELHI: With the Income Tax Return (ITR) filing deadline for Assessment Year 2025–26 extended from July 31 to September 15, 2025, a key question has surfaced: will this extension increase the government’s interest liability on tax refunds?TOI reached out to multiple tax experts to understand the implications of this move on both taxpayers and the exchequer. What emerged is a detailed view of how refund-related interest works under Section 244A of the Income Tax Act, the potential financial burden on the government, and why taxpayers may still be better off filing early.
Extended ITR deadline may lead to higher refund interest
Shalini Jain, Tax Partner, EY India, explained: “The ITR filing extended deadline (for Assessment Year 2025-26, i.e., Financial Year 2024-25) may result in the government paying more interest on tax refunds in certain cases. Considering an example where excess TDS has been deducted from the taxpayer or the taxpayer has paid excess advance tax during the Financial Year (FY), Section 244A(1)(a) of the Income-tax Act, 1961 (Act) provides that the taxpayer will be eligible to receive interest on the refund amount at the rate of 0.5% per month or part of a month calculated from the 1st day of April of the Assessment Year (i.e., April 1, 2025, for AY 2025-26) up to the date on which the refund is granted.”She further noted that the interest is payable only when the refund exceeds 10% of the assessed tax liability. “Therefore, the extension of due date of filing the tax return from July 31, 2025, to September 15, 2025 may lead to higher interest being paid to taxpayers in eligible cases. Further, the taxpayers should also keep in mind that the interest received on refund is taxable in their hands as ‘income from other sources,’” Jain added.ALSO READ: ITR filing FY 2024-25 (AY 2025-26): Deadline to file income tax returns extended from July 31 – check new dateHighlighting the administrative side of the extension, Jain also pointed out a practical benefit for the Government:“While there may be additional interest liability for the Government, the extended time allows the Government to make their systems ready for additional changes brought about in the income tax returns forms and accurately capture the information from TDS/TCS statements filed by tax deductors/collectors, thereby facilitating a smooth and convenient filing experience for the taxpayers.”
Interest still payable if returns filed by extended deadline
Even with the extension, taxpayers are still entitled to receive interest on their tax refunds—provided they file their returns by the new due date of September 15, 2025.“If the Government extends the due date of filing, it would have to pay interest on refunds for the additional time of extension. The Government will need to compensate taxpayers for the extra months that their refunds are delayed,” said Ritika Nayyar, Partner at Singhania & Co., in an exclusive interaction with TOI Online.She added that interest on refunds is calculated at 0.5% per month or part thereof under Section 244A. If the return is filed on or before the due date, interest is calculated from April 1 of the assessment year until the refund is granted.
How much more interest could be paid?
To illustrate how the extended due date could impact pay-outs, Abhishek Soni, CEO and Co-founder of Tax2Win shared a breakdown of refund interest scenarios for returns filed on September 15, 2025, and processed the next day, on September 16, 2025:
Source: Abhishek Soni, CEO and Co-founder of Tax2Win
Longer processing = Higher payouts
In another example, if the same return is filed on September 15, 2025, but the refund is processed on October 3, 2025, the interest period extends to 7 months. Here’s how that plays out:
Source: Ritika Nayyar, Singhania & Co. These scenarios highlight how a longer refund window directly translates into higher interest payouts—an added cost that will be borne by the Income Tax Department.
CA Shefali Mundra, Tax Expert at ClearTax, highlighted “If the return is filed on or before the due date u/s 139(1): Interest begins from 1 April of the assessment year till the date of grant of refund.If the return is filed after the due date u/s 139(1): Interest begins from the date of return filing to the date of grant of refund.”She illustrated the interest payable on tax refunds when ITRs are filed on September 15, 2025, with the refunds processed on September 16 and October 3, 2025, respectively.
Tax refund interest amount if ITR is filed on September 15, 2025, and processed on September 16, 2025
Source: CA Shefali Mundra, Tax Expert, ClearTax
Tax refund interest amount if ITR is filed on September 15, 2025, and processed on October 3, 2025
Source: CA Shefali Mundra, Tax Expert, ClearTax
What triggers refund interest, and who pays?
“Interest is payable only if the refund results from excess payment of TDS, TCS or advance tax and is more than 10% of the total tax liability,” Nayyar clarified. “The extra interest due to the extended deadline will be borne by the Government of India, specifically the Income Tax Department.”
Refund interest isn’t a windfall for taxpayers
Despite longer interest accrual periods, delaying returns doesn’t provide major benefits to taxpayers. “There’s no significant benefit by delaying to file the tax return since the government pays interest upto 6% per annum, which is almost at par, if not lower, than what banks are paying these days,” said Ankit Jain, Partner at Ved Jain and Associates.Jain pointed out that while filing closer to the deadline might earn you more interest, it’s only marginal.“If one has a refund of Rs 1,00,000 and his return is filed on September 15 with the refund processed on October 3, he gets Rs 3,500 as interest. Had he filed on July 31 and refund issued on August 18, the interest would be Rs 2,000. That’s just Rs 1,500 more—hardly a compelling reason to delay,” he explained.He added that the cost to the government is not heavy because “the coupon rate of Government borrowing is almost at the same rate.”
Interest burden manageable for the government
Some tax professionals echoed the view that while the extension increases interest outflow, it’s not alarming. “The extension of the ITR filing deadline from July 31 to September 15, 2025, does not increase the interest rate; it merely increases the period for which interest is calculated,” said Ashish Karundia, Founder of Ashish Karundia & Co., Chartered Accountants.He emphasized that the Government’s liability is limited because the 6% per annum interest paid is quite conservative and aligned with the cost of government borrowings.ITR refund is not dependent on deadlineAccording to S. Sriram, Partner at Lakshmikumaran & Sridharan Attorneys, refunds are more a function of actual filing and processing than of deadlines.“Granting of a refund is not dependent upon the due date for filing of tax returns but on the actual filing of the return and its processing by the CPC. If the return is filed by July 31, the CPC can process the return earlier and grant the refund quickly,” he told TOI.He warned that filing late—even within the extended deadline—would delay refund processing and result in longer interest periods, which the Government would then have to fund.
ITR processing still faces operational challenges
Even with a push to expedite ITR processing, challenges remain. “To mitigate the potential rise in interest liability, the Government may consider accelerating processing at the CPC,” said Ashish Karundia.He noted that refund timelines also depend on various factors: the complexity of the ITR form, nature of income, taxpayer risk profile, claims made, and cross-verification with third-party data. “Processing times can vary significantly based on these elements,” he said.
What about other interest provisions?
Aarti Raote, Partner at Deloitte India, brought another dimension into the picture—interest under Sections 234A and 234B. While the extension waives 234A interest (for delayed return filing), taxpayers still remain liable under 234B if they failed to pay sufficient advance tax.“Taxpayers should note that while the tax return filing deadline is extended and hence interest under section 234A for delayed filing will not be triggered if the return is filed by September 15, interest under 234B continues till the date of actual payment if there is default in advance tax,” Raote said.She added that from a government perspective, “delayed processing means delayed scrutiny and delay in the process overall. The Government also pays interest, which starts from the date of filing of the tax return.”However, according to Abhishek Soni, CEO and Co-founder of Tax2Win, “The extension of the ITR filing deadline from July 31 to September 15, 2025, does not increase the interest paid by the government on tax refunds. Interest continues to be calculated from April 1, 2025, up to the date the refund is issued, provided the return is filed by the extended due date. However, if the return is filed after the deadline, the interest amount may be reduced.“
Final takeaway
While the extension provides relief to those needing more time to file, the consensus among tax professionals is clear: taxpayers should aim to file early.“While the ITR filing deadline extension provides taxpayers with additional time to file their returns, it also results in a longer waiting period for refunds. Consequently, eligible taxpayers will accrue more interest on their refunds due to the extended processing time. Taxpayers should file their returns promptly once filing is live to expedite the refund process.” said CA Shefali Mundra, Tax Expert, ClearTax.
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