Following the judgment of the Delhi high Court in Court on Its Own Motion Vs UOI 352 ITR 273, the Central Board of Direct Taxes (CBDT) has issued Instruction No. 7/2013 dated 15.07.2013 stating that a taxpayer should not be denied interest on tax refund unless the delay is caused due to assessee’s fault.
According to the High Court, when the delay in processing the tax refund is not attributable to the assessee but is due to the fault of the Revenue (i.e. department), interest should be paid under section 244A of the Income-tax Act.
The interest on tax refund should be paid at the rate of .5% per month i.e. 6% per annum. Where the refund arises on account of tax deduction at source (TDS) or advance-tax payment, the interest should be paid from the first day of April of the assessment year to the date on which the refund is granted. However, no interest is paid if the refund amount is less than 10% of the tax paid.