The Income Tax Act 2025 is set to come into force on 1 April 2026, replacing the long-standing Income Tax Act of 1961. While the new law does not drastically alter the overall tax liability for most individuals, it brings several significant updates aimed at making the refund process clearer, simpler, and more transparent. Sections 431 to 438 of the new Act specifically outline when taxpayers are eligible for refunds, how interest on delayed refunds will be calculated, and the conditions under which such interest becomes payable.

With refund-related complaints rising every year, the revised provisions are expected to provide much-needed clarity and ensure timely redressal.

Under Sections 431 and 433 of the Income Tax Act 2025, a refund becomes payable when the tax paid by a taxpayer exceeds their actual tax liability for the financial year. However, receiving a refund is strictly dependent on one condition: the taxpayer must have filed their Income Tax Return (ITR). This means no refund can be issued without filing a return, even if excess tax has been paid through TDS, TCS, or advance tax.

Section 432 defines specific circumstances where refund eligibility is handled differently:

If a person’s income is clubbed with another individual’s income—common in cases involving minors or spouses—the refund will be issued to the person whose income has been clubbed, not to the individual who paid the tax.

If a taxpayer is unable to file or claim a refund due to death, legal incapacity, or insolvency, the claim can be made by their guardian, trustee, or legal representative. This ensures that the rightful amount is not lost due to unforeseen circumstances.

One of the most noteworthy reforms is outlined in Section 437. According to this provision, taxpayers will now receive interest for delays in issuing refunds. The interest rate has been fixed at 0.5% per month (simple interest). Essentially, the longer the delay, the higher the final refund amount.

This measure aims to reduce administrative delays and ensure greater accountability in processing refunds.

The method of calculating interest depends on the source of the excess tax:

Interest is calculated under two scenarios:

• If the ITR is filed on or before the due date: Interest will be paid from 1 April of the assessment year until the date the refund is issued.




• If the ITR is filed after the due date: Interest will accrue from the actual filing date until the refund is issued.

This discourages late filing while ensuring fairness for those who comply with deadlines.

If the refund comes from tax paid under Section 266, the rule changes slightly. Interest will be calculated from the later of two dates — the date the return was filed or the date the tax was paid — until the refund is released.

However, there is one important restriction: no interest will be paid if the refund amount is less than 10% of the total tax liability, as per Section 437(2). This prevents small administrative adjustments from creating additional burden on the system.

The new law also covers refunds generated after an Assessing Officer passes an order based on a taxpayer’s application. Even in such cases, taxpayers will receive 0.5% monthly interest from the date of application until the refund is credited.

This ensures uniformity and fairness across all types of refund processes, whether automated or manually assessed.

Overall, the Income Tax Act 2025 aims to eliminate ambiguity around refund timelines and conditions. With interest provisions now clearly defined, taxpayers can expect quicker processing and greater transparency.

As the Act rolls out next year, tax practitioners and individual taxpayers alike will be watching closely to see how effectively these changes improve the refund system.