Income tax refund rules taxpayers must remember

The deadline for filing Income Tax Returns (ITR) for financial year 2022-23 is July 31, 2023. Filing the ITR enables the taxpayer to get an income tax refund from the Income Tax Department if excess tax was paid by them during the year. However, there are certain rules, as explained in this article, which one should keep in mind with regards to claiming tax refund.

Eligibility to get an income tax refund

If the tax paid in advance, based on self-assessment, exceeds the tax that one is liable to pay as per the regular assessment, then one can get a tax refund. The taxes paid by the taxpayer/ on behalf of the taxpayer includes tax deducted at sources (TDS), tax collected at source (TCS) and taxes paid by the taxpayer himself such as advance tax and self-assessment tax.

One should verify that the excess tax paid is reflected in Form No 26AS and all incomes are shown in the Annual Information Statement (AIS), when filing the ITR.

Further, one should ensure that their bank account details are updated on the official e-filing portal as refunds will be credited to their bank account.

Interest on income tax refund

An interest is paid by the income tax department in case the refund amount is 10% or more of the total tax paid. Under the Section 244A of the Income Tax Act, simple interest at 0.5% per month or part of the month on the amount of tax refund is paid. The interest is calculated from April 1st of the relevant assessment year till the date of issuing the refund if the return is filed on or before the due date. In cases of delay in ITR filing, the interest on the refund amount is computed from the date of furnishing the ITR to the date on which the refund is granted.

Income tax refund amount is not taxable

The amount of income tax refund is not considered as income, hence it is not taxable. However, the interest received over the tax refund is treated as income. Thus, it is subjected to income tax as per the applicable tax slab.

Can you claim tax refund if you have failed to file ITR after the last date?

In case a taxpayer has failed to file the ITR by the due date, they can still claim a refund, according to circular no. 9/2015 for six assessment years subject to complying with certain conditions. For this, one should first file an application for condonation of delay. Once the delay is condoned, ITR must be filed online for the last six years citing reference of the order granting condonation.

Refund adjusted against outstanding demands

Under Section 245 of the Income Tax Act, tax authorities have the power to set-off the taxpayer’s refund amount against such outstanding taxes. The income tax department can adjust the refund amount due against any outstanding demand of earlier years. However, it must provide an intimation before such an adjustment is made. If a taxpayer’s refund has been wrongfully adjusted, they can claim the same by registering a grievance on the income tax portal.