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Section 234D : As per Rule 119A, while calculating the interest payable by the taxpayer or the interest payable by the Central Government to the taxpayer under any provision of the Act:
a) where interest is to be calculated on annual basis, the period for which such interest is to be calculated shall be rounded off to a whole month or months. For this purpose, any fraction of a month shall be ignored and the period so rounded off shall be deemed to be the period in respect of which the interest is to be calculated;
b) where the interest is to be calculated for every month or part of a month comprised in a period, any fraction of a month shall be deemed to be a full month and the interest shall be so calculated;
c) the amount of tax, penalty or other sum in respect of which such interest is to be calculated shall be rounded off to the nearest multiple of one hundred rupees. For this purpose any fraction of one hundred rupees shall be ignored and the amount so rounded off shall be deemed to be the amount in respect of which the interest is to be calculated.
Section 234D was inserted by the Finance Act, 2003, w.e.f. 1-6-2003 to provide for payment of interest on excess refund of income tax to the assessee.
Basic Provisions
If the taxpayer has paid excess tax, then he will claim the refund of the same in his return of income and it will be refunded to him. Many times it may happen that the taxpayer is granted a refund at initial stage, i.e., at the time of intimation under section 143(1) and at a later stage (i.e., on regular assessment) the refund gets reduced. In such a case the excess refund is recovered from the taxpayer along with interest under section 234D. Under section 234D interest is levied if any refund is granted to the taxpayer under section 143(1) and:
a) no refund is due on regular assessment; or
b) the amount refunded under section 143(1) exceeds the amount refundable on regular assessment.
Regular assessment generally means an assessment under section 143(3), i.e., scrutiny assessment or an assessment under section 144, i.e., best judgment assessment. Assessment made for first time under section 147 or section 153A shall also be treated as regular assessment.
Rate of Interest
Interest under section 234D is levied @ ½ % per month or part of the month.
How much TDS to be deducted as per Section 194I?
Period of Levy of Interest
Interest is levied from the date of grant of refund under section 143(1) till the date of regular assessment.
Regular assessment means an assessment under section 143(3) or section 144. Assessment made for first time under section 147 or section 153A shall also be treated as a regular assessment.
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Amount Liable for Interest
Interest under section 234D is levied on the whole or the excess amount of refund (as the case may be).
Adjustment Under Section 234D
Where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount of refund granted under sub-section (1) of section 143 is held to be correctly allowed, either in whole or in part, as the case may be, then, the interest chargeable, if any, under subsection (1) of Section 234D shall be reduced accordingly.
Case Laws on Section 234D
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