The last date for filing income tax returns (ITRs) was July 31, 2023, though taxpayers can still file belated ITR forms, albeit at an added cost. Many assessees who had filed their ITRs before the due date are now eagerly waiting for the tax refund amounts to be credited to their bank accounts.
However, are all taxpayers entitled to a refund? Is the refund amount taxable? How does one check their tax refund status online? People are raising questions like these and more on various social media handles hoping for tax professionals to help them with the much-needed response.
Are you entitled to get an income tax refund?
An income tax refund pertains to the reimbursement of surplus tax payments that have exceeded the taxpayer’s actual tax liability. This reimbursement becomes viable when the sum of taxes paid on the taxpayer’s behalf surpasses the individual’s due tax obligation. These payments encompass taxes deducted at source (TDS), taxes collected at source (TCS), along with taxes directly paid by the taxpayer such as advance tax and self-assessment tax.
An income tax refund isn’t automatically processed; it requires you to take proactive steps. To initiate the process, you must file your ITR. Within this filing, it’s essential to confirm that the tax credit is visible in Form 26AS. Form 26AS serves as a comprehensive annual tax summary, encompassing particulars about TDS, TCS, advance tax payments made by the taxpayer, and self-assessment tax.
It’s prudent to meticulously review the details of available tax credits, in addition to assessing all the incomes listed in the Annual Information Statement (AIS). The AIS functions as a document that outlines the specifics of your earnings and deductions for a given financial year.
How to claim an income tax refund?
When you submit your ITR to request an income tax refund, it's essential to encompass all your earnings and apply for the applicable exemptions and deductions. If the cumulative sum of taxes deducted, collected, and paid by you surpasses the calculated tax liability stated in your ITR, you will be eligible for a refund subsequent to the processing of your ITR.
To successfully obtain an income tax refund, the taxpayer must undergo the process of filing an ITR form. The ITR submission necessitates adherence to the designated form and the inclusion of all requisite documentation. Moreover, it’s imperative to ensure the accuracy of the bank account details specified within the ITR.
The subsequent steps elucidate the procedure for claiming an income tax refund:
- Complete the ITR in the stipulated form and provide all essential documentation.
- Verify the correctness of the bank account particulars provided in the ITR.
- Monitor the status of your refund through the e-filing portal of the Income Tax Department.
- The e-filing portal will exhibit the status of your refund. In instances where the refund has been processed, the portal will indicate the date on which the refund was disbursed into your bank account.
How to claim your refund if ITR not filed till last date?
Even if you miss the deadline for filing your ITR, you can still potentially claim a refund, provided you meet specific criteria outlined in Circular No. 9/2015 issued by the Central Board of Direct Taxes (CBDT).
The prerequisites for obtaining an extension in filing an ITR to claim a refund are as follows:
- The delay in filing should not exceed six years from the conclusion of the assessment year for which the refund is being sought.
- The taxpayer should not have faced prosecution for any offense under the Income Tax Act during the period of delay.
- There must be a valid and reasonable explanation for the delay in filing.
- The taxpayer should submit a request for the extension of delay along with the relevant ITRs within six months from the conclusion of the month in which the delay is pardoned.
The application for delay extension should be directed to the Principal Commissioner of Income Tax or Commissioner of Income Tax (Pr. CCIT/CCIT) overseeing the taxpayer's case. The application should be supported by the following documents:
- A comprehensive statement detailing the reasons behind the delay.
- Copies of the ITRs for the relevant assessment years.
- A copy of the order granting the delay extension.
The Principal Commissioner of Income Tax or Commissioner of Income Tax (Pr. CCIT/CCIT) has the authority to pardon the delay if they are convinced that the taxpayer's rationale for the delay is valid.
Upon the approval of the delay extension, the taxpayer can electronically submit the ITRs for the pertinent assessment years. Any refund, if applicable, will be processed by the Income Tax Department within a reasonable timeframe.
Consider these additional recommendations when claiming a refund under Circular No. 9/2015:
- Swiftly file your application for delay extension.
- Ensure that your application is comprehensive and all requisite documents are attached.
- Maintain integrity and accuracy in your application.
- Maintain communication with the Income Tax Department regarding your application's progress.
Is your income tax refund taxable?
The net surplus of overpaid tax remains entirely non-taxable. However, the interest accrued on income tax refunds is indeed subject to taxation. This interest is categorized as taxable income under the classification "Income from Other Sources."
The interest rate for income tax refunds is set at six per cent per annum. The interest is deemed payable from the first day of the month immediately following the conclusion of the financial year in which the excess tax payment transpired.
To illustrate, if an excess tax payment was made during the financial year 2022-23, interest entitlement would commence from April 2023. This interest accrual persists until the date on which the refund is successfully processed.
Filing your ITR within the stipulated due date ensures you receive the full interest amount. In contrast, any delay in filing your ITR translates to a forfeiture of interest for the duration of the delay.
The interest associated with an income tax refund becomes taxable in the fiscal year in which it is actually received. Consequently, if the interest is received in the financial year 2023-24, its taxable status is applicable during the assessment year 2024-25.
To circumvent tax liability on interest from income tax refunds, consider the following strategies:
- Complete your ITR within the designated timeframe.
- Avoid undue delays in claiming your refund.
- Keep a vigilant record of the entitled interest amount.
When can your refund be withheld and how to claim it then?
Section 245 of the Income Tax Act grants the Income Tax Department the authority to offset the amount of an expected refund against any pending dues from prior years. This legal provision also mandates that the Income Tax Department must issue a notification before executing such an adjustment. Nonetheless, full adherence to this requirement is not always guaranteed.
Should your rightful refund be erroneously used for adjustment, you can rectify the situation by submitting a complaint through the income tax website upon logging into your account. Alternatively, you can engage with the Income Tax Department to request a reevaluation of the decision.
It's noteworthy that the Income Tax Department lacks the authority to allocate any income tax refund designated for earlier years to cover tax obligations in subsequent years. This stance is rooted in the principle that the refund is the property of the taxpayer, and the Income Tax Department cannot requisition it without the taxpayer's explicit consent.
To mitigate the possibility of an incorrect refund adjustment, consider these measures:
- Maintain vigilance over any unresolved tax liabilities.
- Familiarize yourself with the stipulations outlined in Section 245 of the Income Tax Act.
- When notified by the Income Tax Department about a refund adjustment, verify its validity.
If you suspect an unwarranted refund adjustment, promptly submit a complaint through the income tax website or reach out to the Income Tax Department for resolution.
