Income tax refund occurs when a taxpayer has paid more tax than their actual tax liability, resulting in an excess payment. This excess can arise from Advance Tax paid, Tax Deducted at Source (TDS), Tax Collected at Source (TCS), or Self-Assessment Tax paid. If the total of these advance tax payments exceeds the tax liability computed after filing the return, the taxpayer is entitled to a refund.
In this article, we will walk you through the entire process of claiming and receiving income tax refunds in India. From filing the income tax return (ITR) to receiving the refund, we’ll explore each step and provide practical insights to help taxpayers claim their refunds efficiently.
An income tax refund is the reimbursement of tax paid in excess by a taxpayer. It typically arises when the advance taxes paid (including TDS, TCS, and Self-Assessment Tax) exceed the total tax liability after the year-end calculation. This often happens when the taxpayer overpays taxes during the course of the year, either by way of advance tax installments or through TDS deductions by employers or clients.
Example: If a taxpayer has paid Rs. 1,00,000 in advance taxes (through TDS, advance tax, and self-assessment tax) but their calculated tax liability at the end of the year is Rs. 80,000, they will be eligible for a refund of Rs. 20,000.
To claim an income tax refund, the taxpayer must file a proper income tax return (ITR) within the prescribed due dates. The refund process is initiated only when the ITR is filed and verified. Here’s a step-by-step guide:
• Preparation: The taxpayer must gather all necessary documents such as Form 16 (TDS certificate), Form 26AS (which shows all tax credits), and financial statements.
• Calculation: Compute the final tax liability by considering all deductions, exemptions, and TDS or advance taxes paid.
• ITR Filing: File the appropriate ITR form on the Income Tax Department’s e-filing portal. Ensure that you enter the correct bank account details, as the refund will be credited directly to this account.
Once the return is filed, it must be verified by the taxpayer. This is a crucial step for processing the return and initiating the refund. The following methods can be used for verification:
• Aadhaar-based OTP: The taxpayer can authenticate the ITR using an OTP sent to their registered mobile number linked with Aadhaar.
• Internet Banking: Verification can be done through the net banking account of the taxpayer.
• De-mat Account: Some taxpayers can verify the return through their Demat account.
• ITR-V (Physical Verification): If none of the above methods are applicable, the taxpayer can print the ITR-V (Income Tax Return Acknowledgement), sign it, and send it to the Centralized Processing Centre (CPC) via post.
The verification must be done within 120 days from the date of filing the return. Failure to verify within the given time frame will result in the return not being processed, which leads to delays in receiving the refund.
After the ITR is verified, it is sent to the Centralized Processing Centre (CPC) for processing. At CPC, the return is checked for arithmetic accuracy and the tax paid is mapped electronically.
• Intimation: Once the return is processed, the taxpayer may receive an intimation under Section 143(1), which informs them about any discrepancies or adjustments.
• Arithmetical or Prima Facie Error: If there is any error or mismatch in the tax calculation or payment records, the taxpayer will be notified and asked to rectify the return.
After successful processing, the CPC will generate the Refund Intimation, confirming that the refund has been processed.
In some cases, even after the refund is processed, the taxpayer may not receive it in their bank account. This can occur due to the following reasons:
If there is any outstanding tax demand from previous years (including penalties or interest), the tax authorities may adjust the refund against the demand. In such cases, the taxpayer will receive an updated notice regarding the adjustment.
Example: If a taxpayer has an outstanding demand of Rs. 10,000 for the previous year, the income tax department may adjust this amount from the current year’s refund.
If the ITR is selected for further scrutiny or investigation, it may be sent to the Jurisdictional Officer for detailed review. The taxpayer will receive a notice for scrutiny proceedings along with a questionnaire to provide additional information. During the scrutiny process, the refund is kept on hold.
If the taxpayer has entered incorrect or invalid bank account details during the ITR filing process, the refund will not be credited to the account. The taxpayer can rectify the issue by updating the bank details in the e-filing portal and re-requesting the refund.
Taxpayers can track the status of their income tax refund online. There are two ways to check the refund status:
You can check the status on the Tax Information Network (TIN) website of the Income Tax Department by entering the PAN and Assessment Year for which the refund is claimed. The portal link is:
https://tin.tin.nsdl.com/oltas/refund-status-pan.html
The refund status can also be tracked from your user login on the Income Tax e-filing portal, where taxpayers can check the Refund Paid status and other relevant details.
Income tax refunds are a critical component of the tax system, ensuring that taxpayers who have paid excess taxes are reimbursed. However, understanding the process of filing returns, verifying them, and following up on the refund status is essential to avoid delays and ensure timely receipt of refunds.
By adhering to the guidelines outlined in this guide, taxpayers can minimize errors in their return filings and enhance the chances of receiving refunds promptly. At ReturnFilings.Com, we provide expert assistance in filing income tax returns, ensuring that your refund claims are handled efficiently and in compliance with the law. For professional assistance, reach out to us on email: info@returnfilings.com or on whatsapp: https://wa.me/919910123091.
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