Section 437 — Interest on refunds. Successor to s.244A of the 1961 Act.
Section 437 is in Chapter XX — Refunds, which runs from section 431 to section 438.
Sub-section (1) entitles an assessee due a refund to simple interest at 0.5% for every month or part of a month, for the periods set out in a three-row Table: refunds out of tax collected at source under section 394, advance tax, or tax treated as paid under section 390(5) run from 1 April of the year following the tax year where the return was filed by the section 263(1) due date, and otherwise from the date the return was furnished; refunds out of tax paid under section 266 run from the later of the return date or the payment date; and any other case runs from the date or dates on which the excess over the demand in the section 289 notice was paid. Sub-section (2) denies interest under rows 1 and 2 where the refund is less than 10% of the tax determined under section 270(1) or on regular assessment, and sub-section (3) gives interest from the date of the assessee's application where a row 1 refund follows an order on an application under section 288(1) (Table Sl. No. 11). Sub-section (4) adds a further 3% per annum where a refund arises from giving effect to an order under section 359, 363, 365(10), 368, 377 or 378 otherwise than by fresh assessment or reassessment, running from the day after the section 286(1) time limit expires, with sub-section (5) excluding any period the refund was withheld under section 438(3). Sub-section (6) gives a deductor 0.5% a month on refunds of amounts paid under Chapter XIX-B, from the date of the prescribed claim or the date of payment of tax where the refund follows a specified appellate order. Sub-sections (7) to (11) exclude delay attributable to the assessee or deductor, make the senior Commissioner's decision on that exclusion final, adjust the interest up or down when the underlying amount changes on a later order, and require a notice of demand — deemed a section 289 notice — for excess interest already paid.
It compensates the taxpayer for money held by the department, at a fixed monthly rate, and adds a higher additional rate where the department is slow to give effect to an appellate order. The exclusions for delay attributable to the assessee and the small-refund threshold keep the compensation to genuine departmental holding of funds.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Ordinary rate of interest on refunds | 0.5% for every month or part of a month | Simple interest, for the period specified in column C of the Table against the applicable circumstance | Sub-section (1) |
| Start of interest on refunds of TCS, advance tax or tax treated as paid under section 390(5) | 1 April of the year following the tax year | Only where the return was furnished on or before the section 263(1) due date; otherwise interest runs from the date the return was furnished | Sub-section (1), Table Sl. No. 1 |
| Threshold below which no interest is payable | Less than 10% of the tax determined under section 270(1) or on regular assessment | Applies to refunds under Table Sl. Nos. 1 and 2 only | Sub-section (2) |
| Interest where the refund follows an order on the assessee's section 288(1) application | 0.5% for every month or part of a month | Computed from the date of the application to the date the refund is granted | Sub-section (3) |
| Additional interest where an appellate order is given effect without fresh assessment | 3% per annum | In addition to sub-section (1) interest, for orders under section 359, 363, 365(10), 368, 377 or 378, from the day after expiry of the time allowed under section 286(1) (Table Sl. Nos. 9 and 10) to the date of refund, excluding any period the refund was withheld under section 438(3) | Sub-section (4), with sub-section (5) |
| Interest to a deductor on refund of amounts paid under Chapter XIX-B | 0.5% for every month or part of a month | From the date of the prescribed refund claim, or from the date the tax was paid where the refund follows an order under section 359, 363, 365(10) or 368 | Sub-section (6) |
Filing by the section 263(1) due date is worth money: it starts interest on an advance tax or TCS refund from 1 April following the tax year, whereas a late return starts it only from the date of filing. Small refunds under rows 1 and 2 carry no interest at all if they are below 10% of the tax determined, so the threshold is worth checking before disputing an interest computation. Where the department has simply to give effect to an appellate order, the extra 3% a year under sub-section (4) is the lever for delay — but any period during which the refund was withheld under section 438(3) is taken out. If the refund is delayed for reasons attributable to you, that period is excluded, and the Commissioner's decision on how much of the delay is yours is final under sub-section (8).
A firm's tax determined under section 270(1) is Rs 50 lakh and its refund is Rs 4 lakh, which is 8% of that tax. Sub-section (2) denies interest altogether, the refund being less than 10% of the tax determined; on a refund of Rs 6 lakh the same firm would carry interest at 0.5% for every month or part of a month. Where interest does run on advance tax or on tax collected under section 394, it starts from 1 April of the year following the tax year only if the return went in by the section 263(1) due date — file it late and row 1(b) of the Table starts the clock only from the date the return was actually furnished. The further 3% per annum in sub-section (4) is narrower still: it is available only where an appellate order is given effect otherwise than by making a fresh assessment or reassessment.
You meet it in the refund itself — the interest is computed and added when the refund is granted on an intimation or assessment — and, if it is later reduced under sub-section (9), in a notice of demand for the excess which sub-section (11) deems to be a notice under section 289. A deductor meets it through the prescribed refund claim form under sub-section (6), from which its interest runs.
he shall, subject to the provisions of this section, be entitled to receive, in addition to the refund, simple interest thereon calculated at the rate of 0.5% for every month or part of a month
See the full 1961 to 2025 concordance.