When do you become eligible for an income tax refund?

A mismatch between the tax amount paid and the actual payable amount results in an income tax refund. A refund is initiated if the amount paid exceeds the actual amount due. This can be done using Form 30.

Tax refunds are available under income tax and other direct tax legislation when the amount of tax paid by a person (or paid on his or her behalf) exceeds the amount on which he or she is legitimately taxable. Sections 237 through 245 of the Income Tax Act of 1961 take note of this.

The Income Tax (IT) refund is processed by the Income Tax authorities present at the Centralised Processing Centre (CPC) in Bengaluru. The refunds are handled after the assessee files his or her tax returns. The IT refund banker accepts orders for income tax refunds that are generated and sent by the IT authorities whenever any tax reimbursement arises during the processing of ITRs.

But the IT department will only be able to provide 0.5 percent interest on the refunds every month only if a few conditions are met.

• The ITR needs to be filed by the person on or before the due date arrives.
• The refund amount should be greater than 10% of the actual taxable amount.

For example, there are two taxpayers. Tom and Jerry have previously paid an advance tax of ₹5 lakhs each. Tom was liable for ₹4.80 lakhs in tax after filing his ITR and will receive a refund of ₹20,000. Jerry owed ₹4.50 lakhs in taxes and should be entitled to a refund of ₹50,000. Tom will receive his return, but without interest, according to the ITR department, because 10 percent of ₹4.8 lakh — ₹48,000 is more than the excess amount he paid (refund amount) i.e. ₹20,000.

Jerry, on the other hand, will receive a refund with the interest of 0.5 per cent every month starting April 15 because 10 percent of 4.5 lakhs — ₹45,000 is less than the refund amount i.e. ₹50,000. And as we know that the assessee is eligible for refund only when the refund amount is greater than 10 percent of the taxable amount.

Who is eligible for it?

• If the tax you paid in advance on the basis of self-assessment is greater than the tax you owe on a regular basis.
• If your TDS from salary, interest on securities or debentures, dividends, or other sources exceeds the tax payable on a regular assessment basis.
• If the tax levied on the basis of regular assessments is decreased as a result of an error in the assessment procedure is corrected.
• The same income is taxed both in India and in a foreign country (with which India has an agreement to avoid double taxation).
• If you have unreported investments that provide tax advantages and deductions.
• If you discover that the tax paid amount is negative after taking into account the taxes you’ve paid and the deductions you’re allowed.

If the refund payment is delayed, the Income Tax Department is liable to pay interest at a rate of 6 percent under Section 244A of the Income Tax Act. The interest on your refund will be calculated from the day the tax was paid to the date the refund was issued.

For example, if you seek a ₹10,000 refund for the 2017-18 fiscal year and receive it in March 2018, the interest on your refund will be calculated from April 2017 to March 2018.

Refunds are always welcome, but it’s preferable to avoid overpaying in the first place by calculating your estimated taxes more exactly. The closer your refund comes to zero, the more money you’ll have for the rest of the year.

Not everyone, however, agrees to this. Some taxpayers regard refunds as an alternative savings plan, anticipating a lump-sum payment.