Section 437
Section 437: interest on refunds
Section 437 explains that a refund due to an assessee under the Act does not come alone - in most circumstances, simple interest is also payable on it, at the rate of 0.5% for every month or part of a month. The section sets out, circumstance by circumstance, the period for which that interest runs, when no interest is payable at all, and when an additional layer of interest applies because of delay.
This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.
The basic rule: 0.5% per month
Where a refund is due to the assessee, sub-section (1) entitles the assessee to simple interest on the refund, calculated at 0.5% for every month or part of a month, for a period that depends on why the refund arose.
| Where the refund is out of... | Interest runs for |
|---|---|
| Tax collected at source under section 394, or advance tax, or tax treated as paid under section 390(5), for the financial year | (a) From 1 April of the year following the tax year to the date the refund is granted, if the return was furnished on or before the due date under section 263(1); or (b) from the date of furnishing the return to the date the refund is granted, in any other case |
| Tax paid under section 266 | From the date of furnishing the return of income or payment of tax, whichever is later, to the date the refund is granted |
| Any other case | From the date(s) on which the tax or penalty specified in the notice of demand under section 289 was paid in excess of the demand, to the date the refund is granted |
When no interest is payable
Sub-section (2): no interest is payable on a refund out of TCS/advance tax/section 390(5) tax, or out of tax paid under section 266, if the amount of the refund is less than 10% of the tax as determined under section 270(1) or on regular assessment.
Refund arising from a rectification application
Sub-section (3): where the refund (out of TCS/advance tax/section 390(5) tax) arises from an order the Assessing Officer passes on an application made by the assessee under section 288(1) (rectification), interest at 0.5% per month runs from the date of that application to the date the refund is granted.
Additional interest of 3% per annum for delayed-effect orders
Sub-section (4): where a refund arises from giving effect to an order under section 359, 363, 365(10), 368, 377 or 378 - wholly or partly, and otherwise than by making a fresh assessment or reassessment - the assessee is entitled to additional interest, over and above the interest under sub-section (1), computed at 3% per annum on the refund amount.
This additional interest runs from the day after the time allowed under section 286(1) (Table Sl. Nos. 9 and 10) expires, to the date the refund is granted.
Sub-section (5): in computing this additional interest, if assessment or reassessment proceedings are pending, the period during which the Assessing Officer withholds the refund under section 438(3) is excluded.
Interest on refunds to a deductor (TDS/TCS deposits)
Sub-section (6): where a refund becomes due to a deductor in respect of an amount paid to the credit of the Central Government under Chapter XIX-B, the deductor is entitled to simple interest at 0.5% per month, running from the date a prescribed-form claim is made (or, where the refund arises from giving effect to an order under section 359, 363, 365(10) or 368, the date the tax was paid) to the date the refund is granted.
Delay attributable to the assessee or deductor
Sub-section (7): if the proceedings leading to the refund are delayed, wholly or partly, for reasons attributable to the assessee or the deductor, that period of delay is excluded from the interest-bearing period.
Sub-section (8): any dispute about what period should be excluded under sub-section (7) is decided by the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner, and that decision is final.
Adjustment of interest and recovery of excess interest
Sub-section (9): if a later order under any of sections 270(10), 271, 279, 287, 288, 359, 363, 365(10), 368, 377 or 378 increases or reduces the amount on which interest under sub-section (1) or (3) was payable, the interest is increased or reduced accordingly.
Sub-section (10): where interest is reduced under sub-section (9), the Assessing Officer serves a notice of demand (in prescribed form) on the assessee specifying the excess interest paid and requiring repayment.
Sub-section (11): this notice of demand is deemed to be a notice under section 289, and the Act's provisions apply to it accordingly.
Frequently asked questions
What is the standard rate of interest on an income-tax refund?
Simple interest at 0.5% for every month or part of a month, calculated for the period set out in the table in section 437(1) depending on the source of the refund.
When is no interest paid on a refund?
Under section 437(2), no interest is payable on a refund out of TCS, advance tax, or section 390(5)/section 266 tax if the refund amount is less than 10% of the tax determined under section 270(1) or on regular assessment.
Is there any additional interest beyond the standard 0.5% a month?
Yes - section 437(4) provides an additional 3% per annum interest, on top of the sub-section (1) interest, where a refund arises from giving effect to specified appellate/revisional orders (sections 359, 363, 365(10), 368, 377 or 378) otherwise than by a fresh assessment or reassessment.
Related sections
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Ask our tax team about your refund and interest calculationLast updated 9 September 2026