Not many days are left for taxpayers looking to file their income tax returns (ITRs). There is a common misconception that ITRs are filed to gain refunds from the government. This idea is totally wrong as you are entitled to a refund only when you have paid taxes in excess of your tax liability.
The common questions that taxpayers are asking their tax personnel include “Who is entitled to get a refund? What are the taxation rules of ITR? And how to claim your refund?”
Who is entitled to get an income tax refund?
When taxpayers’ total tax payments exceed their tax liability, they become eligible for an income tax refund, including taxes like Tax Deducted at Source (TDS), Tax Collected at Source (TCS), and Advance Tax paid by the taxpayers.
Let's examine the different types of taxes that might qualify for a refund:
- Tax Deducted at Source: This tax is withheld by the payer from the payee's income. For example, if you are employed, your employer deducts TDS from your salary and forwards it to the government on your behalf.
- Tax Collected at Source: The government collects this tax from the payer at the time of making a payment to a third party. For instance, when you purchase a car, the dealer collects TCS from you and submits it to the government on your behalf.
- Advance Tax: Taxpayers have the option to pay this tax in advance before their annual tax liability is due. They can choose to pay it in instalments throughout the year or as a lump sum.
- Self-assessment Tax: Taxpayers compute this tax themselves and directly pay it to the government. The due date for self-assessment tax is typically April 30 of each year.
If you believe that you qualify for an income tax refund, you have the right to file a claim with the tax authorities. To process your claim, you'll need supporting documentation, such as Form 26AS, which provides an overview of the total taxes paid on your behalf.
It is important to verify the details of all tax credits available to you and all incomes shown in your Annual Information Statement (AIS) when filling out Form 26AS. Refunds are directly deposited into your bank account, so ensure accuracy in your bank account information while filing your ITR form as refunds are directly deposited into your account.
How to claim your income tax refund?
When filing your ITR form to claim a refund, it is essential to include all your income and take advantage of available exemptions and deductions. If the total taxes deducted, collected, and paid by you exceed your calculated tax liability on the ITR, you will receive a refund after the processing of your ITR. However, please note that the refund may not be issued immediately. The Income Tax Department will first verify the tax details you've provided with the information they have on record before processing the refund.
How to claim a refund if ITR is filed after the due date?
In case you missed the December 31 deadline for filing your ITR, there's still a chance to claim a refund for up to six assessment years under Circular No. 9/2015, provided you meet certain conditions.
To begin, you need to submit an application accepting the delay and explaining the reasons behind your late ITR filing. Once your application gets approved, you can proceed to file your ITR online for the last six years, referencing the condonation order's number.
The conditions for claiming a refund under Circular No. 9/2015 are as follows:
- You must have filed your ITRs for the current assessment year.
- You must have paid the late filing fees for the previous assessment years.
- You must have a valid PAN and Aadhaar number.
- You must have a bank account registered in your name.
If you fulfil all these conditions, you become eligible to claim a refund for the previous six assessment years. The refund processing typically takes around 20-45 days from the date of filing your ITR.
To ensure a smooth refund claim process, consider the following additional tips under Circular No. 9/2015:
- Act promptly and file your application for condonation of delay as soon as possible.
- Include all relevant documents supporting your reasons for the late filing along with your application.
- File your ITR online for the preceding six years to complete the refund claim process.
- Retain copies of all paperwork for future reference.
By adhering to these guidelines, you can increase your chances of successfully claiming a refund under Circular No. 9/2015.
Is the income tax refund amount taxable?
There seems to be some confusion regarding the tax implications of the amount received after a tax refund claim is processed. The excess tax paid, which constitutes the net refund amount, is not taxable. However, the interest earned on the refund is subject to taxation.
The interest accrues from April 01 of the financial year following the year in which the ITR form is filed. Taxpayers who file their ITR by the due date, typically July 31 in most cases, are entitled to receive the full interest amount.
However, if taxpayers delay filing the claim for a refund, they will not be eligible for interest during the delay period. For instance, failing to submit the ITR by July 31 will result in the taxpayer not receiving interest from April 01 until the month in which they finally file the ITR.
The interest earned on an income tax refund is categorized as “Income from Other Sources” and is subject to taxation in the year it is received. The tax on this interest income is calculated based on the taxpayer's applicable tax slab rate.
To avoid paying tax on the interest earned from your income tax refund, consider these tips:
- File your ITR on time to be eligible for the full interest amount.
- Avoid any delays in filing your claim for a tax refund.
- Keep track of the interest earned on your tax refund throughout the process.
- Ensure that you report the interest income accurately on your tax return to fulfil your tax obligations.
Can your refund be withheld and how to claim the amount?
The Income Tax Department possesses the authority to adjust a taxpayer's refund against any outstanding tax demand from previous years. However, the taxpayer must be given an opportunity to present their case before such an adjustment takes place.
If you believe that your refund has been unjustly adjusted, you have the option to file a grievance on the income tax website after logging into your account. While doing so, you will be required to provide essential details such as your PAN, the assessment year for which the refund was due, and the amount of the refund that was adjusted.
It's crucial to recognize that the taxpayer lacks the authority to adjust a refund against tax payable for subsequent years. This implies that if you have an outstanding tax demand from a prior year and receive a refund for a subsequent year, the refund won't be automatically applied to the outstanding demand.
If you wish to adjust a refund against an outstanding tax demand, you must submit a separate request to the income tax department.
Here are some additional tips to keep in mind when filing a grievance regarding a wrongfully adjusted refund:
- Ensure that you provide comprehensive information, including your PAN, the assessment year for which the refund was due, and the amount of the refund that was adjusted.
- Keep copies of all relevant paperwork, including the grievance form and any supporting documents.
- Be persistent in following up on your grievance, as the department may take some time to investigate and make a decision.
Not all taxpayers are entitled to receive a refund. In the end, it depends on your tax liability and how much tax has already been deducted from your income and purchases. The idea to file an ITR only to gain the refund amount is very much misplaced and must be tackled with a sound understanding of tax guidelines and a realization of how taxes are calculated post the deductions and exemptions allowed under the Income Tax Act, 1961.