Section 426 · Collection & recovery
Section 426 of the Income-tax Act, 2025 — Interest on Excess Refund (Successor to Section 234D)
By CA Rajat Agrawal
Updated 05 Jul 2026
Chapter XIX
📜 What the law says — Section 426, Income-tax Act 2025
426. (1) Subject to the other provisions of this Act, where any refund is
granted to the assessee under section 270(1), and—
(a) no refund is due on regular assessment; or
(b) the amount refunded under section 270(1) exceeds the amount
refundable on regular assessment,
the assessee shall be liable to pay simple interest at the rate of 0.5% on the whole
or the excess amount so refunded, for every month or part of a month comprised in
the period from the date of grant of refund to the date of such regular assessment.
(2) Where, as a result of an order under section 287 or 288 or 359 or 363 or 365(10)
or 368 or 377 or 378, the amount of refund granted under section 270(1) is held to
be correctly allowed, either in whole or in part, then, the interest chargeable, if any,
under sub-section (1) shall be reduced accordingly.
(3) Where in relation to a tax year, an assessment is made for the first time under
section 279, the assessment so made shall be regarded as a regular assessment for
the purposes of this section.
2. Substituted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to its substitution, clause (f) read
as under :
“(f) any tax credit allowed to be set off as per section 206(1)(m) to (p) and 206(2)(e) to
(h).”
F.—Levy of fee in certain cases
[Fee for default in furnishing statements.
3
427. (1) Without prejudice to the provisions of this Act, where any person fails
to deliver or cause to be delivered a statement as per section 397(3)(b) within
the time prescribed therein, he shall be liable to pay by way of fee, a sum of ` 200 for
every day for which such failure continues.
(2) The amount of fee referred to in sub-section (1) shall—
(a) not exceed the amount of tax deductible or collectible; and
(b) be paid before delivering or causing to be delivered the statement, as per
sub-section (1).
(3) Without prejudice to the provisions of this Act, where any person who is required
to furnish a statement of financial transaction or reportable account under section
508(1), fails to furnish such statement within the time prescribed under section 508(2),
he shall be liable to pay by way of fee, a sum of ` 200 for every day for which such
failure continues and such fee shall not exceed a sum of ` 1,00,000.
Fee for default in furnishing return of income, audited accounts and reports.
In plain language
What Section 426 is about
Section 426 of the Income-tax Act, 2025 is the provision that lets the Income-tax Department charge you interest when it has refunded you more money than you were actually entitled to. It is the direct successor to the old Section 234D of the Income-tax Act, 1961, and applies from tax year 2026-27 onwards (the Act is effective 1 April 2026).
The logic is simple and fair: when you file your return, the Department may process it quickly under a summary "intimation" and pay you a refund based on what you claimed. Later, when a detailed regular assessment is done, it may turn out that you were never entitled to that refund, or entitled to a smaller one. Because the government paid you public money early, it recovers the time value of that excess money by charging you simple interest.
When does interest under Section 426 apply?
- A refund was granted under Section 270(1) — i.e. on summary processing of your return (the successor to the old Section 143(1) intimation refund).
- Later, on regular assessment, either: no refund is actually due to you, or the refund that was granted exceeds the amount refundable on regular assessment.
If both conditions are met, interest is charged on the whole excess amount refunded.
Rate and period of interest
- Rate: simple interest at 0.5% per month or part of a month (i.e. 6% per annum) — unchanged from Section 234D.
- Amount: charged on the whole of the refund (if nothing was due) or on the excess portion (if a smaller refund was due).
- Period: from the date the refund was granted up to the date of the regular assessment.
- Part of a month: any part of a month is treated as a full month, so even a few days spill over into a whole month's interest.
Who does it apply to?
It applies to every category of taxpayer — individuals, HUFs, firms, LLPs, companies and others — who received a refund on summary processing that later proves excessive. You do not have to have done anything wrong; it is a compensatory, not a penal, charge. It commonly arises where a refund based on claimed TDS/TCS credit, deductions or losses is later cut down in scrutiny assessment.
The relief mechanism — interest gets reduced if you win later
Section 426 is not one-way. If, as a result of an appeal or revision order under Sections 287, 288, 359, 363, 365(10), 368, 377 or 378, the refund originally granted is finally held to have been correctly allowed — wholly or partly — then the interest charged under Section 426 is reduced accordingly. So if you contest the assessment and win, the interest is rolled back in proportion to your success.
First-time assessment treated as regular assessment
Where an assessment is made for the first time under Section 279 (best-judgment / first assessment), that assessment is treated as the "regular assessment" for the purposes of Section 426. This closes a gap and prevents disputes about whether interest can run when no earlier assessment existed.
How it interacts with related interest sections
- Sections 423-425 (successors to 234A/234B/234C) deal with interest for late filing and shortfall in advance tax — 426 sits alongside these as the fourth "234-series" head.
- Section 270(1) is the trigger — the refund on summary processing that Section 426 later claws back interest on.
- Interest under 426 is separate from any interest the Department pays you on legitimate refunds — the two are computed independently.
Practical implications for taxpayers
- Be cautious about over-claiming TDS credit, deductions or losses that could be trimmed in scrutiny — an early refund can turn into an interest liability.
- The interest is modest (6% p.a.) but accrues for the entire gap between refund and regular assessment, which can be years in scrutiny cases.
- If you dispute and win in appeal, claim the corresponding reduction of Section 426 interest — it is not always adjusted automatically.
💡 Example
Example 1 — refund fully withdrawn. Mr. Arjun files his return for tax year 2026-27. On summary processing under Section 270(1), the Department grants him a refund of ₹1,00,000 on 15 July 2027 based on his claimed TDS credit. His case is picked for scrutiny, and on regular assessment completed on 20 March 2029, it is found he was entitled to no refund at all. Interest under Section 426 runs on ₹1,00,000 from July 2027 to March 2029 — 21 months (counting part months as full) at 0.5% = 10.5% = ₹10,500 payable in addition to the ₹1,00,000 recovered.
Example 2 — refund partly excessive. Ms. Priya received a refund of ₹80,000 on 10 August 2027. On regular assessment on 10 February 2028, only ₹50,000 was actually refundable. The excess is ₹30,000. Period = August 2027 to February 2028 = 7 months. Interest = ₹30,000 x 0.5% x 7 = ₹1,050.
A relatable story. Think of it like a shopkeeper who hands you change of ₹500 in a hurry, then realises at closing time he over-paid you by ₹100. He is not accusing you of theft — he just wants the ₹100 back, plus a small something for the days it sat in your pocket. Section 426 is exactly that: the government paid a refund quickly to be helpful, discovered later it was too much, and charges a gentle 6%-a-year "carrying cost" on the excess it had to wait to recover. And if you later prove the refund was rightfully yours, the extra charge is wiped away.
| Aspect | Section 426 (Act, 2025) | Section 234D (Act, 1961) |
|---|
| Purpose | Interest on excess refund granted on summary processing | Same |
| Rate | 0.5% per month or part of a month (6% p.a.) | 0.5% per month or part of a month (6% p.a.) |
| Refund-grant trigger | Refund under Section 270(1) | Refund under Section 143(1) |
| Amount charged | Whole refund (if none due) or excess portion | Whole refund or excess portion |
| Period | Date refund granted to date of regular assessment | Date refund granted to date of regular assessment |
| First-time assessment | Section 279 assessment treated as regular assessment | Section 147/153A assessment treated as regular assessment |
| Relief on appeal | Reduced per orders u/s 287, 288, 359, 363, 365(10), 368, 377, 378 | Reduced per corresponding appellate/revision orders |
| Nature | Compensatory (not penal) | Compensatory (not penal) |
Related sections
Section 270 — Processing of return and grant of refund (successor to 143(1)) Section 423 — Interest for default in furnishing return (successor to 234A) Section 424 — Interest for default in payment of advance tax (successor to 234B) Section 425 — Interest for deferment of advance tax (successor to 234C) Section 279 — Assessment / best-judgment assessment treated as regular assessment Section 287 — Appeal orders that can reduce interest on excess refund
Frequently asked questions
What is Section 426 of the Income-tax Act, 2025 in simple terms?
It lets the Income-tax Department charge you simple interest at 0.5% per month when a refund paid on summary processing of your return later turns out to be more than you were actually entitled to. It is the successor to Section 234D of the 1961 Act.
What is the rate of interest under Section 426?
Simple interest at 0.5% for every month or part of a month, which works out to 6% per annum, charged on the whole or excess amount of refund.
For what period is the interest charged?
From the date the refund was granted (under Section 270(1)) up to the date of the regular assessment. Any part of a month is counted as a full month.
Is Section 426 interest a penalty?
No. It is compensatory, not penal. It simply recovers the time value of the excess public money that was refunded to you early and later found to be more than due.
Can the interest be reduced if I win in appeal?
Yes. If an appeal or revision order under Sections 287, 288, 359, 363, 365(10), 368, 377 or 378 holds that the refund was correctly allowed in whole or part, the Section 426 interest is reduced accordingly.
How is Section 426 different from Section 234D?
The mechanics, 0.5% monthly rate and compensatory nature are the same. The main change is renumbering and updated cross-references — the refund trigger is now Section 270(1) instead of 143(1), and a first-time assessment under Section 279 is treated as regular assessment.
Who has to pay interest under Section 426?
Any taxpayer — individual, HUF, firm, company or other — who received a refund on summary processing that a later regular assessment shows was excessive or not due at all.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 05 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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