Income Tax Law / Refunds / Historical provision

Section 243 of the Income-tax Act, 1961 - Interest on Delayed Refunds

Section 243 provided interest on income-tax refunds not granted within prescribed periods. It is a historical provision for assessments up to assessment year 1988-89, not the provision governing refund interest for assessment year 1989-90 and later years.

Important applicability note: Section 243(3) expressly excludes assessments for assessment year 1989-90 and subsequent assessment years. Section 244A of the Income-tax Act, 1961 became the consolidated refund-interest provision for those assessment years. Do not apply Section 243's historical 15 percent annual rate to a modern refund claim.

What did Section 243 provide?

Section 243 addressed delays by the Assessing Officer in granting a refund. Its provisions established a three-month period, an interest consequence for qualifying delays, and a procedure for excluding periods attributable to the taxpayer.

Explanation of Section 243(1), (2) and (3)

Section 243(1)(a) - Income determined under the Act

Where the taxpayer's total income did not consist solely of income from interest on securities or dividends, the Assessing Officer was required to grant the refund within three months from the end of the month in which total income was determined.

Section 243(1)(b) - Other cases

In the other category of cases, the relevant three-month period ran from the end of the month in which the refund claim was made under the refund chapter.

Interest on delayed refunds

If the refund was not granted within the applicable period, the Central Government was liable to pay simple interest at 15 percent per annum on the amount directed to be refunded, from the day following expiry of the three-month period until the date of the order granting the refund. This was the historical statutory rate, not the present general rate.

Explanation - Delay attributable to the assessee

Any part of the delay attributable to the assessee was excluded from the period for which interest was payable.

Section 243(2) - Decision on excluded period

A dispute over the period to be excluded from interest calculation was to be decided by the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner, as applicable; the section described that decision as final.

Section 243(3) - Restriction to older assessment years

This subsection states that Section 243 does not apply to assessments for assessment year 1989-90 or any subsequent assessment year. Accordingly, its three-month rule and 15 percent annual interest rate should not be presented as current refund-interest entitlements.

Refund interest for later assessment years

Section 244A applies to assessments from assessment year 1989-90 onward under the 1961 Act. Its rules depend on the type of tax payment, return filing dates, the relevant assessment year and other statutory conditions. Under the amended provision, the ordinary interest rate is generally 0.5 percent per month or part of a month, subject to the applicable statutory conditions and exclusions. Additional interest can arise in specified circumstances; the actual computation must follow the applicable version of the law.

For tax years governed by the Income-tax Act, 2025, which came into force on 1 April 2026, consult the refund and interest provisions of that Act and the relevant transitional rules rather than assuming Section 243 or Section 244A governs every case.

Historical illustration

Suppose a qualifying pre-1989-90 refund was due after the determination of total income in June, and the Assessing Officer did not grant it within three months from the end of June. Subject to the statutory exclusions, Section 243 would have imposed simple interest from the day following the end of that period until the order granting the refund. This example illustrates the former law only.

Practical steps for a delayed refund

Identify the assessment year or tax year and the governing statute.
Check the refund determined in the return, intimation, assessment, rectification or appellate order.
Review refund status and bank validation on the official Income Tax e-Filing portal.
Examine interest calculations under the applicable law and any period of delay attributable to the taxpayer.
Where the refund or interest appears incorrect, consider the appropriate grievance, rectification, appeal or other statutory remedy within the applicable time limits.

Official statutory references

Frequently asked questions

Is Section 243 applicable to current income-tax refunds?

No. Section 243(3) excludes assessment year 1989-90 and later assessments. Later refunds under the 1961 Act are generally governed by Section 244A, subject to the relevant statutory provisions.

Does the historical 15 percent interest rate apply today?

No. The 15 percent per annum rate described in Section 243 was a historical rule. The interest applicable to a particular modern refund must be determined under the law governing that year.

Can taxpayer-caused delay reduce refund interest?

Yes. Both the historical Section 243 framework and subsequent refund-interest provisions contain rules excluding periods of delay attributable to the taxpayer, subject to their respective conditions.

Updated: 27 October 2026. This article provides general statutory information and does not replace case-specific professional advice.