A taxpayer becomes eligible for an income tax refund when taxes paid are higher than your actual tax liability inclusive of interest. It could be in the form of advance tax, self-assessment tax, TDS, etc. In the following instances, the taxpayer becomes eligible to claim tax refund:
- When the advance tax paid on estimated income is higher than the actual tax liability of a taxpayer.
- If tax deducted at source (TDS) from salary, interest, professional or other incomes is higher than the tax payable on regular assessment.
- When self-assessment tax paid is in excess of actual tax liability.
- When an income is charged in India and in a foreign country. (with whom the Indian government has an agreement to avoid double taxation).
How to claim Income Tax Refund?
A few basic things to keep in mind if you want to claim a refund.
- Don’t forget to submit Form 12BB Investment Declaration to your employer
- Entered all the deductions in your income tax return.
- If you don’t enter deduction details in tax return then your tax liability will be higher than the TDS deducted by an employer.
- You will end up paying tax which you are not liable to.
- File an income tax return to claim a refund.
- If you do not file an income tax return then all your tax credits including TDS and advance/self-assessment taxes will go in vain.
- Income Tax Department will not automatically pay you a refund just because you have paid taxes.
- Declare all the incomes and deductions in ITR to show that your taxes paid are greater than the actual tax assessed.
Once you have filed your income tax return, you need to wait for assessment from the Income Tax Department. Here what you need to do:
- You will receive an intimation u/s 143(1) once the return is processed.
- It will contain a comparison of income and tax calculation as per your tax return and as per the Income Tax Department.
- The refund is correct if the refund amount as per ITR and Intimation is the same.
- When there is a discrepancy you need to check the calculations for reasons of mismatch.
- If there is any calculation error then you can rectify your return u/s 154(1)
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Types of refund status
Once a tax payer files his return, they want to know the status of their refund. IT Department has classified different refund statuses for the taxpayer. It is important to understand the meaning of refund status. Since refund status determines the next course of action that needs to be taken by the taxpayer.
Different Refund Status on income tax e-filing website:
|Refund Status||Meaning||Course of Action|
|No e-filing has been done for this assessment year||You have missed filing the return for that assessment year. OR The paper return was filed for that year.||File your Income Tax Return immediately. You can file your return from here.|
|Not Determined||IT Department has still not processed your return||Confirm if your return is filed and duly e-Verified.|
|Refund Paid||IT Department has sent the refund to you.||If you have not received a refund yet: In case of direct credit to your bank account contact your bank. In case of refund cheque, check out with the post department.|
|No Demand No Refund||This means you have claimed a refund in your return but as per the department’s calculation, you are not liable for a refund.||In case of any error in a filed return, revise your return. OR If you have received an intimation then understand the reason of difference and then file rectification return.|
|Refund Unpaid||Income Tax Department has sent a refund to you but either your address is wrong or bank details provided are incorrect.||Find out the reason for refund failure and then raise a refund reissue request.|
|ITR processed refund determined and sent out to Refund Banker||The department has sent the refund details to the refund banker.||Contact your bank.|
|Demand determined||Department has rejected your refund claim and raised an outstanding demand.||Understand the notice. If you find that your own refund request was erroneous then pay the demand. OR If there is a mistake made by the department, you can file a rectification.|
|Contact Jurisdictional Assessing Officer||Whenever the department needs some more information regarding your ITR. You receive this message.||Contact your AO via telephone, mail or post.|
Interest on Income Tax Refund
Many times the taxpayer does not get the refund in due time, in such a case Income Tax Department pays interest on late refund. However, no interest shall be payable if the amount of refund is less than 10% of the tax as determined under section 143(1) or tax determined under regular assessment. Section 244A mentions the provisions in this regard which are as follows:
Amount of Interest on Refund
- Where the refund arising to the taxpayer is out of any TDS/TCS or tax paid by way of advance tax, then the taxpayer shall be entitled to interest calculated at the rate of 0.5% for every month or part of a month. Interest shall be allowed for a period commencing from the 1st day of April of the assessment year to the date on which the refund is granted if the return is furnished on or before the due date of filing of return specified under section 139(1) otherwise interest shall be allowed from the date of furnishing of return of income to the date on which the refund is granted
- Where the refund arises to the taxpayer is out of taxes paid by way of self-assessment tax then the taxpayer shall be entitled to interest calculated at the rate of 0.5% for every month or part of a month. Interest in such a case shall be allowed for a period commencing from the date of furnishing of return of income or payment of tax, whichever is later, to the date on which the refund is granted.
- In any other case (i.e., a case in which refund is due to reasons other than those stated above), interest shall be calculated at the rate of 0.5% for every month or part of a month for a period commencing from the date/dates (as the case may be) of payment of the tax or penalty to the date on which the refund is granted. Further, the expression “date of payment of tax or penalty” means the date on and from which the amount of tax or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand.
Taxability of Interest on Income Tax Refund
The interest amount is taxable under the head “Income from other sources”. Further, while filing returns for the financial year (FY) in which the refund was given, the interest will be taxable as per the tax slab rate of the person.
Your may not be getting refund for one of the following reasons:
1. You may not have filed an income tax return for the relevant assessment year
2. Your taxes paid matches your total tax liability for a relevant assessment year
3. You might have forgotten to claim taxes paid on your return
4. You might have furnished incorrect bank account details in your return
No, refund received by a taxpayer is not taxable. But, any interest received on the refund is taxable in the year in which refund is received by a taxpayer.
Income Tax Department processes the refund only after processing your ITR. Generally, it takes 30-45 days from the date of e-verification of your Income Tax Return to get your refund credited. Further, IT Department is planning on processing refund faster in coming years.
Taxpayer’s records are transferred to the jurisdictional assessing officer by CPC after a particular time period for every assessment year. Taxpayers receive an intimation regarding the same. Therefore, once the AO receives the files, one can follow up for a refund by submitting a letter in this regard to the jurisdictional assessing officer and follow up personally at regular intervals.
You will receive your refund directly in your Primary bank account. You can choose the primary bank account while filing your ITR.
If your tax refund status is ‘refund returned’ then it means when ITD had tried to credit the refund to your bank account, but it failed. In such a case you are required to submit a refund reissue request.