Why You Could Receive Higher Interest on Tax Refunds in 2025

If you’re expecting a tax refund this year, here’s some good news, you might receive more than you originally anticipated. Thanks to the Income Tax Return (ITR) deadline extension for the assessment year 2024–25, the interest component on your tax refund could be higher than usual.

This blog breaks down how interest on tax refunds is calculated, why it may increase this year, and what you should keep in mind to make the most of it.

How Interest on Tax Refunds Works in India

Under Section 244A of the Income Tax Act, if the Income Tax Department owes you a refund (due to excess TDS, advance tax, or self-assessment tax), they also pay simple interest at 0.5% per month (or 6% annually) on the refund amount. 

Here's a simplified view of how this interest on tax refunds is calculated:

• Interest is paid from April 1 of the assessment year to the date the refund is issued.
• If your ITR is filed before the due date, interest starts from April 1.
• If filed after the due date, interest starts from the date of filing.

You don’t have to do anything extra to claim this, the interest is automatically calculated and credited along with your refund.

The 2025 ITR Deadline Extension: Why It Matters

This year, the Central Board of Direct Taxes (CBDT) has extended the due date to file your ITR from July 31 to September 15, 2025.

What does this mean for you?

If you’re eligible for a refund and file your return before September 15, you’ll still be treated as an on-time filer — which means your interest will be calculated from April 1, not from your actual filing date.

This effectively gives taxpayers an extra 1.5 months’ worth of interest on their refund. Even though the monthly rate is modest (0.5%), over lakhs of taxpayers and crores of refund amounts, this difference can be meaningful.

Interest on Tax Refunds: How Much Extra Can You Get?

Let’s look at what this extra interest could mean in real money.

Since the interest rate is 0.5% per month, a two-month extension adds 1% extra interest on your refund amount. That may not sound like much but it adds up:

So, taxpayers who file anytime between August and mid-September are still eligible for interest from April 1, just like early filers — resulting in up to 33% higher interest in some cases.

Who Benefits the Most?

Not everyone will notice a big change — but some groups benefit more than others:

• Salaried employees often see excess TDS deducted, making them eligible for refunds. The added interest gives them a little bonus this year.
• Freelancers and consultants who pay advance tax or self-assessment tax often end up with excess payments — and will now get a better return on it.
• High-value refund cases (like property sale TDS refunds or business adjustments) see the biggest benefit in absolute rupees.
• People who file early but face processing delays may still receive more interest — as the interest clock starts from April, not from when the refund is processed.

The extension isn’t just a time buffer, it could also be a financial perk.

What Do the Numbers Say? India’s Growing ITR Filing & Refund Trends

India’s tax base continues to grow rapidly — and with it, so do tax refunds and the interest attached to them. The most recent data shows a clear upward trend in ITR filings year over year. This is a good sign of increasing tax compliance and also proof that more taxpayers are eligible for refunds, and interest on those refunds is becoming a major talking point.

Let’s take a quick look:

Additional Highlights (AY 2024–25):

• 5.27 crore ITRs filed under the New Tax Regime
• 58.57 lakh were first-time filers
• 69.92 lakh ITRs filed in one day (July 31, 2024)
• 6.21 crore ITRs e-verified (as of July 31, 2024)
• 2.69 crore ITRs already processed
• 3.2 crore logins handled on peak day

With such high volumes and early processing underway, refund activity — and the interest on refunds — is expected to remain strong throughout the extended deadline window.

With the ITR deadline extension till September 15, 2025, this upward trend could continue, making it even more essential to file early and accurately to receive your refund (and the interest that comes with it) without delays.

Important Considerations

While it’s tempting to think of this as “free money,” there are a few things you should keep in mind:

• Refund interest is taxable: You must report it as “Income from Other Sources” in your ITR for the year in which the refund was received.
• Don’t delay just for interest: The extra interest (0.5% per month) is relatively small. In most cases, it’s better to file early and get your refund sooner.
• Mismatched information can delay interest: If your bank account, PAN, or verification steps are incomplete, it may delay both the refund and the interest accrual.

The key is to file correctly and on time, not just to chase a few extra rupees.

How to Ensure You Get Your Interest on Tax Refunds

Here are a few simple steps to make sure you receive the full eligible refund interest:

• File your ITR before September 15, 2025 to qualify for interest from April 1.
• E-verify your return promptly — processing starts only after verification.
• Double-check your bank account details — refunds can’t be processed without them.
• Use the Income Tax Portal to track your return and refund status.

A little attention now can prevent delays later and ensure your refund comes with the interest you’re owed.