INCOME TAX LAW | HISTORICAL PROVISION AND CURRENT REFUND RULES

Section 214 of the Income-tax Act, 1961: Interest Payable by Government

Section 214 governed interest payable by the Central Government on excess advance tax for older assessment years. It does not apply to assessments for assessment year 1989-90 or later. This guide explains its historical operation, the statutory exclusions and the provisions subsequently governing refund interest.

Important applicability note: Section 214(3) expressly excludes assessment year 1989-90 and subsequent assessment years. Do not apply its historical 15% annual rate to modern income-tax refunds. For refunds governed by the Income-tax Act, 1961, consult Section 244A and the applicable amendments. For tax years under the Income-tax Act, 2025, consult the corresponding provisions of that Act.

1. Meaning and scope of Section 214

Under the historical framework of the Income-tax Act, 1961, advance tax paid under Sections 207 to 213 could exceed the assessed tax. Section 214 provided for simple interest on the excess, subject to statutory qualifications. Its purpose was to compensate a taxpayer for the relevant period during which the Government retained excess advance tax.

Section 214 must be read with its own commencement and amendment history. Most importantly, subsection (3) makes the section inapplicable to assessments for assessment year 1989-90 and later. Accordingly, this page retains the historical rule for legal research, not as a statement of the present refund rate.

2. Section 214 explained subsection by subsection

Section 214(1): Interest on excess advance tax

For assessment years to which it applied, the Central Government was required to pay simple interest at the historical statutory rate of 15% per annum on the amount by which aggregate instalments of advance tax exceeded assessed tax. Ordinarily, interest ran from 1 April immediately after the financial year of payment until the date of regular assessment. A special rule addressed an instalment paid after the financial year under the former Section 213.

The proviso restricted interest after a provisional assessment under former Section 141A in respect of amounts refunded on that assessment.

Section 214(1A): Revision of interest after an order

Where specified assessment, rectification, appeal, revision or settlement orders changed the amount on which interest was payable, the interest was correspondingly increased or reduced. If interest was reduced, the Assessing Officer could issue a demand for excess interest already paid, treated as a notice under Section 156.

Section 214(2): Interest stops on refund

For any part of the excess amount actually refunded, interest was payable only until the date of that refund.

Section 214(3): Cut-off for later assessment years

This subsection provides that Sections 214, 215, 216 and 217 do not apply to assessments for assessment year 1989-90 or any subsequent assessment year. For earlier years, statutory cross-references are interpreted by reference to the provisions applicable to the relevant year, subject to the stated exceptions.

3. Statutory definitions and connected provisions

Advance tax: Income tax paid during the financial year in advance of regular assessment, under the applicable statutory scheme; historically governed by Sections 207 onwards.
Assessed tax: For Section 214, Explanation 1 adopts the meaning assigned by former Section 215(5). The definition must be applied as it stood for the relevant historical assessment year.
Regular assessment: For the purposes of Section 214, Explanation 2 treats an assessment first made under Section 147 as a regular assessment.
Simple interest: Interest calculated on the relevant principal for the applicable period, without compounding.
Section 156: Provides for a notice of demand for sums payable in consequence of an order under the Act.

4. Which provision governs interest on income-tax refunds?

Section 244A of the Income-tax Act, 1961 replaced the earlier fragmented refund-interest provisions for the assessment years to which it applies. It provides interest on qualifying refunds, with different commencement rules depending on the type of payment, the timing of the return and other statutory conditions. The commonly applicable statutory rate under Section 244A has been one-half percent per month or part of a month, subject to the particular clause, applicable amendments and exclusions. Additional interest may arise in specified cases under Section 244A(1A).

The Income-tax Act, 2025 took effect from 1 April 2026. For tax years governed by that Act, the refund-interest provisions in the new enactment and the applicable transition rules must be checked instead of automatically applying Section 214 or Section 244A of the 1961 Act.

Because an assessment year, tax year, type of refund, dates of payment and refund, and any delay attributable to the assessee can affect the result, refund interest should be calculated using the law applicable to the specific case.

5. Historical illustration

Suppose that for an assessment year to which Section 214 applied, aggregate eligible advance tax exceeded assessed tax by Rs. 20,000. At the historical rate of 15% simple interest per annum, a full year on that amount would yield Rs. 3,000. This is an illustrative calculation only: the actual amount depends on the legally relevant period, assessment and refund dates, and the law applicable to that historical year.

6. Legislative background and amendment notes

The historical text recorded the replacement of the earlier 12% rate with 15% by the Taxation Laws (Amendment) Act, 1984, effective 1 October 1984; revisions to the assessed-tax terminology; amendments relating to provisional assessments and adjustment orders; and the insertion of subsection (3) by the Direct Tax Laws (Amendment) Act, 1987 framework, effective from 1 April 1989. These are historical legislative references, not amendments reinstating Section 214 for current assessments.

7. Official legal sources

Legal information only. For historical disputes, verify the text as amended for the assessment year in question. For current refunds, consult the applicable legislation and official assessment or refund records.