The due date for filing the Income Tax Returns (ITRs) is nearing and taxpayers filing their ITR forms are curious about how to ensure maximum income tax refund. But for that, it is essential to understand the guidelines regarding the process of claiming income tax refunds. If the total taxes paid exceed your actual tax obligation, you have the right to request a refund by filing an ITR.
Are you entitled to an income tax refund?
If the amount of taxes paid on behalf of a taxpayer exceeds their tax liability, they have the right to request an income tax refund. This includes taxes deducted at source (TDS), taxes collected at source (TCS), as well as taxes paid directly by the taxpayer such as advance tax and self-assessment tax.
When filing the ITR to claim a refund, it is important to ensure that the tax credit is visible in Form No. 26AS. It is recommended to not only verify the details of all available tax credits but also review all incomes shown in the Annual Information Statement (AIS).
Priyadarshini Moreshwar Mulye, a SEBI registered investment advisor and Founder, ARTHA FinPlan added. “A tax credit is slightly different from a tax deduction. Tax credit directly reduces the amount of tax we owe to the government, whereas, 'tax deduction' reduces the taxable income. For a taxpayer, it's important to know the tax liability & tax credit available. He/she can simply check the same. First, by signing in to the income tax e-filing website. Then, check ‘Form 26AS’. Select the assessment year. One can view or download the same. The most common tax credit available is under Section 87A of the Income Tax Act, 1961 of the FY 2022-23 is ₹12,500 if the assessee’s total income doesn’t exceed ₹5 lakhs.”
When submitting your ITR forms, it is crucial to optimise your tax refund by capitalising on every opportunity.
How do you ensure to receive the tax refund?
Seeking an income tax refund is not a complicated process. It is rather simple. To ensure that the refund amount is credited to your account, you must
- File your ITR within the designated time frame. File your ITR no later than July 31 this year. To evade penalties and interest, it is vital to file your tax return before the deadline. Moreover, filing early facilitates faster processing and the possibility of receiving refunds sooner.
- Selecting the tax regime that aligns with your needs and avoiding late filing can help you evade penalties. If you find yourself lacking sufficient deductions or exemptions to claim, you must opt for the new tax regime.
- Promptly verify your returns to ensure a seamless refund process. It is also important to identify all eligible deductions and exemptions, going beyond what is reflected in Form 16 while reconciling your data to prevent any discrepancies. You must be aware of the deductions you qualify for and make sure to claim them. Some common deductions include contributions to Provident Fund (PF), Public Provident Fund (PPF), National Savings Certificates (NSC), National Pension Scheme (NPS), life insurance premiums, medical insurance premiums, and home loan interest.
- Benefit from the exemptions available. Make the most of the exemptions provided by the Income Tax Act, which include benefits like House Rent Allowance (HRA), Leave Travel Allowance (LTA), and exemptions for conveyance, medical expenses, and gratuity.
- Validate your bank account to ensure a smooth receipt of your tax refund. While including your bank account details in your ITR, it is essential to ensure that your account is accurately validated on the e-filing portal. Validating your bank account is crucial because the income tax department only credits tax refunds to accounts that have been validated on their portal. It is important to complete this validation process before filing your ITR.
By adopting these simple steps, you can optimise your income tax refund and effectively manage your finances.
Many taxpayers complain that they do not receive the refund amount like their peers despite having shared all necessary details and having filed their ITRs on time. However, many of them forget to review the ITR documents for accuracy and completeness. Errors or omissions could result in delays, notices, or complications during the processing of the refund amount. Therefore, it is crucial to ensure that their tax returns are free of unwanted errors and include all the necessary information.
Verification of the ITR is pertinent to seeking a refund
Filing the ITR is not enough. Once you have filed your ITR form, you must verify the same within 30 days of filing. Failure to verify the return within this timeframe will render it invalid, requiring you to file a fresh return if the filing deadline has not passed. If the filing deadline has elapsed, you will no longer be able to file a return for that particular financial year.
Typically, it takes 20-45 days for the income tax refund to be issued after electronically verifying the income tax return. In the event of a delay, the Income Tax Department compensates the taxpayer by providing interest on the delayed refund. All refunds are now directly credited to the taxpayers’ bank accounts.