The clamour of filing Income Tax Return (ITR) forms on time has caused many taxpayers to miss out on details of certain taxable income in the original ITRs they had filed. This has caused many of them to receive tax refunds in excess of what they were entitled to.
Moreover, the Income Tax Department (ITD) has shown a tendency to expedite the processing of ITRs in recent times. While this acceleration is positively received for its role in expediting refund issuance to taxpayers, it has also engendered certain predicaments.
One of the foremost predicaments is the scant leeway it affords taxpayers for rectifying errors present in their initial ITR submissions. To illustrate, a taxpayer might inadvertently omit certain sources of income or deductions, or alternatively, errors in calculations could occur. In cases where the ITD identifies these discrepancies, a tax notification will be dispatched to the taxpayer, who subsequently will be mandated to submit an amended ITR and settle any additional owed taxes.
What if you get an excess tax refund?
In case you have claimed an excessive tax refund without having received any corresponding tax notice from the ITD, it is advisable to promptly submit an amended ITR and reimburse the surplus refund amount. Taking swift action in this regard is crucial to prevent incurring interest charges as stipulated by Section 234D.
Section 234D of the Income Tax Act outlines the provision for interest on excessive tax refunds. The applicable interest rate is set at 0.5 per cent per month or any fraction thereof. Interest is computed starting from the date of refund issuance as per Section 143(1) until the date of the regular assessment.
It's noteworthy that even after filing a revised ITR, you remain obligated to settle interest charges under Section 234D for the duration spanning from the refund issuance date to the revised ITR submission date. However, this interest will exclusively apply to the surplus refund amount.
Given these circumstances, it is of utmost importance to expeditiously lodge a revised ITR to curtail the quantum of interest payable. The process of revising an ITR can be conveniently accomplished through the online e-filing portal provided by the ITD.
Will you be penalised for filing a revised ITR?
In the event that you find yourself in receipt of an excessive tax refund, it's essential to note that you will be subjected to interest charges pursuant to Section 234D of the Income Tax Act. The interest accrues at a rate of 0.5 per cent per month or any portion thereof, calculated on the surplus refund amount. This interest obligation commences from the date of refund disbursement and persists until the date of recompense.
Hiren Thakkar, Chartered Accountant Proprietor, Hiren S Thakkar & Associates shared, “If there is some income which is not considered while filing original return, then one has to revise the Income tax return and pay the tax differential, in this case, excess refund which is to be paid along with six per cent per annum interest for the month or part thereof as per section 234D.”
To settle both the excess refund and the corresponding interest, the e-filing portal's e-pay facility can be utilized. The ensuing steps elucidate the procedure:
- Access the e-filing portal hosted by the Income Tax Department.
- Log in utilizing your PAN (Permanent Account Number) and designated password.
- Navigate to the “Pay Taxes” section.
- Opt for the “Refund” category.
- Input particulars pertaining to the excessive refund quantum and the associated interest.
- Execute the payment using your net banking credentials or your credit/debit card.
- Subsequently, the excessive refund amount and interest will be allocated to your Income Tax account.
Additionally, an alternative avenue for discharging the excess refund and interest involves the submission of a demand draft or pay order to the Income Tax Department. The prescribed protocol for this method encompasses:
- Draft a demand draft or pay order payable to the “Pay and Accounts Officer, Central Processing Centre.”
- Explicitly indicate the surplus refund amount and the corresponding interest on the demand draft or pay order.
By adhering to either of these pathways, you can effectively manage the settlement of both the excessive refund and the applicable interest obligations.
What if tax liability in revised ITR is more than tax refund received?
Section 234B of the Income Tax Act imposes interest charges on taxpayers who neglect to remit advance tax or settle less than 90% of the net tax liability during the assessment year. In parallel, Section 234C of the Income Tax Act levies interest on taxpayers who fail to meet their tax payment obligations within the stipulated timeframes during the assessment year.
In the event that you submit a revised ITR and the determined tax payable surpasses the received tax refund, you become subject to interest assessment under either Section 234B or 234C, as relevant. The computation of interest encompasses the period commencing from the emergence of the tax liability until the full settlement of the tax amount.
The rate of interest designated by Section 234B stands at 1% per month or any portion thereof, whereas the rate specified by Section 234C is 0.5% per month or any part thereof.
To circumvent the obligation of paying interest under either Section 234B or 234C, it is imperative to:
- Ensure the timely submission of your ITR.
- Effectuate the complete payment of the due tax amount within the stipulated timeline.
- In scenarios where the entire tax liability cannot be settled promptly, seek an arrangement with the Income Tax Department to settle the tax through installments.
- Maintain vigilant oversight of your tax obligations, guaranteeing the accurate and timely settlement of the owed tax amount.
By conscientiously adhering to these guidelines, you can effectively evade incurring interest charges as per the provisions of Section 234B or 234C, thereby upholding compliance with the mandates of the Income Tax Act.
Realising actual tax liability before refund receipt
In the event that you have sought an undue tax refund through the submission of fabricated information in your ITR, it is imperative to promptly reimburse the surplus refund amount. This urgency stems from the possibility that the Income Tax Department could initiate severe actions against you, potentially resulting in penalties of up to 200 per cent of the evaded tax and even prosecution.
The Income Tax Department employs a robust system to identify unwarranted claims for tax refunds. This system encompasses advanced data analytics, cross-referencing with other governmental entities, and thorough taxpayer audits. Should the Income Tax Department ascertain that your ITR contains fraudulent claims for tax refunds, they will dispatch a formal notice mandating the repayment of the excessive refund along with accrued interest and penalties.
Beyond the financial ramifications, the repercussions of making false claims for tax refunds extend to potential criminal prosecution. As specified under Section 276C of the Income Tax Act, the penalty for such actions could be as high as 200 per cent of the evaded tax amount. Furthermore, you might face imprisonment for a period of up to seven years.
Hence, it is of paramount importance to maintain honesty and precision while preparing your ITR. In cases of inadvertent errors, swift rectification is essential. Engaging with a qualified tax advisor to comprehend your tax responsibilities and evade potential penalties is highly advisable.
Consider these strategies to prevent the wrongful claiming of excess tax refunds:
- Exercise utmost honesty and precision during ITR filing.
- Refrain from asserting deductions for which you lack entitlement.
- Maintain meticulous records of your income and expenditures.
However, if you are unsure of your actual tax liability and have reasons to believe that you had claimed a tax refund wrongly, it would be better to consult a professional tax advisor for expert advice.