Filing of Income Tax Returns in India: What is Income Tax Refund?

Last Updated at: October 23, 2019
463
Filing of Income Tax Returns in India: What is Income Tax Refund?

An income tax refund is a term which every one of us is familiar. If you have filed your taxes duly in the past then you would have surely received a tax refund depending upon your financial submissions. 

Let’s delve into some of the details:

What is an income tax refund?

An income tax refund can be claimed when the taxpayer has paid excess taxes than the actual tax liability. It could be in the form of advance tax, self-assessment tax, tax deducted at source, tax collected at source, foreign tax credit. The Sections 237 to 245 of the Income Tax Act deal with the provisions relating to refund of tax. 

Who can claim a refund? 

Any taxpayer who has paid tax in excess is entitled to claim the refund. However, Section 238 holds certain provisions on persons who are eligible to claim as stated below:

When an individual’s income is added to the income of another person. For example, if a minor child’s income is combined with the parent’s income, the latter can claim the excess amount. 

If a taxpayer is not able to claim due to unforeseen circumstances like insolvency, death, etc, his guardian or representative can get the refund. 

  • If TDS deducted by employer or the bank of the taxpayer is more than the latter’s tax liability through regular assessment.
  • In scenarios where the same income of a taxpayer gets taxed in a foreign country (with which the government of India has an agreement help avoid double-taxation) and also in India.
  • If the taxpayer has not declared an investment which provided a tax benefit to him

How to claim an income tax refund?

The simple process to claim an income tax refund is by filing the return of income. It is a must for it to be verified through Aadhar number OTP, EVC generated through a bank account or physically verified by posting the signed ITR-V (acknowledgement) of the filing the returns with the time period of 120 days. 

E-file Your Income Tax Returns

Processing of a refund

Even though the filing time period is of 120 days it is important to not delay and do the required process for filing the return as soon as possible. The earlier the verification process is done, the quicker will be the process for your refund. Further, the returns are processed by CPC or Centralized Processing Centre at an initial level and then the return will be issued to the taxpayer. The other option for faster process compared to this is online e-verification.

Issues in the refund process

There are circumstances when the taxpayer’s refund is not processed by the CPC for some reason. A taxpayer’s record is usually transferred to the jurisdictional assessing officer by CPC after a specific time period. This information will be made known to the taxpayer and they can further follow up for the refund by submitting an official letter in regard to this and follow up at a regular time period.

Interest rates on income tax refund

  • The interest rate for a refund for TDS or tax collected at source or advance tax would be 0.5% for every month, starting from 1st April till the date when the refund is granted.  This is only applicable if the ITR is filed on or before the due date, else the interest will be calculated from the date of filing the ITR. 
  • Similarly, for refunds on self-assessment tax, the rate would be 0.5% for every month. But the interest period will be from the date of filing ITR till the date when refund is granted. 
  • There are various instances when the refund amount received is comparatively higher than the refund amount claimed in the income tax return. This additional difference in amount is the interest on the income tax refund. It is compulsory for the income tax department if the refund is 10% or more on tax paid. There will be no interest if the refund amount is less than 10% of the tax. 
  • At times taxpayers may not receive the refund within the stipulated time. In such occurrences, the department is liable to pay interest for the delayed refund. The assessee or the taxpayer will receive interest at the rate of 3% per annum. 
  • It is section 244A which deals with interest on income tax refund which provides the interest at the rate of 0.5% per month. This interest is usually calculated from 1st April of the assessment year till the date for the grant refund is pending.

The checking of refund status

Follow the below steps to check the refund status:

  • Go to this website link.
  • Enter the PAN details, relevant assessment year, captcha image and click on ‘submit’.
  • The following page will show the refund status.
  • The refund payment details are also shown in Form 26AS in the ‘Tax credit statement’.

Adjustment of refund 

In some situations, the income tax department may not pay all the refunds due to you and will adjust accordingly in the coming year. Additionally, the tax department must send a notification in such cases which is compulsory under Section 245 along with guidelines for a proper response from the individual. The usual time limit is of 30 days for the individual to respond and if no response is received then the department can make the adjustment as mentioned. If for any reason you disagree to the tax demand made in the notice or omission of any specific deductions or TDS, then you can send a reply online within the mentioned time period of 30 days.

Avoid scam mails

Taxpayers have to be careful and avoid getting scammed by unofficial emails. There are scam emails which ask for your bank details to process the refund. Do not get into their trap and share any kind of information with them. The department usually already have all your details and will not email you asking for any kind of personal information. 

How much income tax does one get back?

To know the amount of income tax one is eligible to get back as a refund, one needs to calculate the actual tax liability. If the taxes paid by a person are more than his tax liability then the extra taxes get refunded back by the tax department. The income tax calculator can be used to find out the tax liability and the refund that one is eligible for.

How are the refunds made?

To ensure transparency, the refunds are made only through these two modes:

  1. RTGS/NEFT: The Tax Department will credit the refund directly to the bank. The taxpayer needs to provide the following details for direct crediting of the refund in the authorized bank – The 10-digit account number of the bank, the MICR code of the bank and the communication address.
  2. Cheques: The cheques for the refund account will be sent to the applicant’s home address. Here again, it is essential to provide with the right address. A mistake in entering the contact address will result in returning of the cheque.

Taxpayers can view the status of refund 10 days after their refund has been sent by the Assessing Officer to the Refund Banker – by entering ‘PAN’ and ‘Assessment Year’ below

The taxpayers can select the mode of payment according to their convenience while filing taxes online. It needs to be noted, however, that a simple mistake in the address of communication or bank account, or the refund calculation can result in delays or even cancellation.

What should one do if the tax refund is not received?

In such a scenario, one needs to contact the Central Processing Centre of the Income Tax Department on the numbers 1800 4250 0025, and 080-2650 0025. These numbers are provided on the government’s e-filing portal.

Filing of Income Tax Returns in India: What is Income Tax Refund?

463

An income tax refund is a term which every one of us is familiar. If you have filed your taxes duly in the past then you would have surely received a tax refund depending upon your financial submissions. 

Let’s delve into some of the details:

What is an income tax refund?

An income tax refund can be claimed when the taxpayer has paid excess taxes than the actual tax liability. It could be in the form of advance tax, self-assessment tax, tax deducted at source, tax collected at source, foreign tax credit. The Sections 237 to 245 of the Income Tax Act deal with the provisions relating to refund of tax. 

Who can claim a refund? 

Any taxpayer who has paid tax in excess is entitled to claim the refund. However, Section 238 holds certain provisions on persons who are eligible to claim as stated below:

When an individual’s income is added to the income of another person. For example, if a minor child’s income is combined with the parent’s income, the latter can claim the excess amount. 

If a taxpayer is not able to claim due to unforeseen circumstances like insolvency, death, etc, his guardian or representative can get the refund. 

  • If TDS deducted by employer or the bank of the taxpayer is more than the latter’s tax liability through regular assessment.
  • In scenarios where the same income of a taxpayer gets taxed in a foreign country (with which the government of India has an agreement help avoid double-taxation) and also in India.
  • If the taxpayer has not declared an investment which provided a tax benefit to him

How to claim an income tax refund?

The simple process to claim an income tax refund is by filing the return of income. It is a must for it to be verified through Aadhar number OTP, EVC generated through a bank account or physically verified by posting the signed ITR-V (acknowledgement) of the filing the returns with the time period of 120 days. 

E-file Your Income Tax Returns

Processing of a refund

Even though the filing time period is of 120 days it is important to not delay and do the required process for filing the return as soon as possible. The earlier the verification process is done, the quicker will be the process for your refund. Further, the returns are processed by CPC or Centralized Processing Centre at an initial level and then the return will be issued to the taxpayer. The other option for faster process compared to this is online e-verification.

Issues in the refund process

There are circumstances when the taxpayer’s refund is not processed by the CPC for some reason. A taxpayer’s record is usually transferred to the jurisdictional assessing officer by CPC after a specific time period. This information will be made known to the taxpayer and they can further follow up for the refund by submitting an official letter in regard to this and follow up at a regular time period.

Interest rates on income tax refund

  • The interest rate for a refund for TDS or tax collected at source or advance tax would be 0.5% for every month, starting from 1st April till the date when the refund is granted.  This is only applicable if the ITR is filed on or before the due date, else the interest will be calculated from the date of filing the ITR. 
  • Similarly, for refunds on self-assessment tax, the rate would be 0.5% for every month. But the interest period will be from the date of filing ITR till the date when refund is granted. 
  • There are various instances when the refund amount received is comparatively higher than the refund amount claimed in the income tax return. This additional difference in amount is the interest on the income tax refund. It is compulsory for the income tax department if the refund is 10% or more on tax paid. There will be no interest if the refund amount is less than 10% of the tax. 
  • At times taxpayers may not receive the refund within the stipulated time. In such occurrences, the department is liable to pay interest for the delayed refund. The assessee or the taxpayer will receive interest at the rate of 3% per annum. 
  • It is section 244A which deals with interest on income tax refund which provides the interest at the rate of 0.5% per month. This interest is usually calculated from 1st April of the assessment year till the date for the grant refund is pending.

The checking of refund status

Follow the below steps to check the refund status:

  • Go to this website link.
  • Enter the PAN details, relevant assessment year, captcha image and click on ‘submit’.
  • The following page will show the refund status.
  • The refund payment details are also shown in Form 26AS in the ‘Tax credit statement’.

Adjustment of refund 

In some situations, the income tax department may not pay all the refunds due to you and will adjust accordingly in the coming year. Additionally, the tax department must send a notification in such cases which is compulsory under Section 245 along with guidelines for a proper response from the individual. The usual time limit is of 30 days for the individual to respond and if no response is received then the department can make the adjustment as mentioned. If for any reason you disagree to the tax demand made in the notice or omission of any specific deductions or TDS, then you can send a reply online within the mentioned time period of 30 days.

Avoid scam mails

Taxpayers have to be careful and avoid getting scammed by unofficial emails. There are scam emails which ask for your bank details to process the refund. Do not get into their trap and share any kind of information with them. The department usually already have all your details and will not email you asking for any kind of personal information. 

How much income tax does one get back?

To know the amount of income tax one is eligible to get back as a refund, one needs to calculate the actual tax liability. If the taxes paid by a person are more than his tax liability then the extra taxes get refunded back by the tax department. The income tax calculator can be used to find out the tax liability and the refund that one is eligible for.

How are the refunds made?

To ensure transparency, the refunds are made only through these two modes:

  1. RTGS/NEFT: The Tax Department will credit the refund directly to the bank. The taxpayer needs to provide the following details for direct crediting of the refund in the authorized bank – The 10-digit account number of the bank, the MICR code of the bank and the communication address.
  2. Cheques: The cheques for the refund account will be sent to the applicant’s home address. Here again, it is essential to provide with the right address. A mistake in entering the contact address will result in returning of the cheque.

Taxpayers can view the status of refund 10 days after their refund has been sent by the Assessing Officer to the Refund Banker – by entering ‘PAN’ and ‘Assessment Year’ below

The taxpayers can select the mode of payment according to their convenience while filing taxes online. It needs to be noted, however, that a simple mistake in the address of communication or bank account, or the refund calculation can result in delays or even cancellation.

What should one do if the tax refund is not received?

In such a scenario, one needs to contact the Central Processing Centre of the Income Tax Department on the numbers 1800 4250 0025, and 080-2650 0025. These numbers are provided on the government’s e-filing portal.

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