If you are new to income tax and trying to get a hold of the entire process, you might have come across the term ‘income tax refund’. In cases where a taxpayer pays more income tax than his/her tax liability, the IT department refunds the excess amount.

The taxpayer who has paid excess income tax has the legal right to receive the refund under Section 237 of the IT Act. Let us have a detailed look at what this tax refund process is and how the IT department processes the same:

How to Claim Income Tax Refund?

There is no process as such for claiming income tax refunds. If you have filed the tax returns correctly with complete disclosure of all your income and deductions used, the IT department will automatically verify your returns to determine whether or not you are eligible for receiving a refund.

But do ensure that you verify your ITR after filing. In case if you have reasons to believe that you should receive a tax refund, but the IT department has not processed it yet, there is a Form 30 that you can use. Fill and submit Form 30 on the returns filing website, and the IT department will then again look into your case to ensure if you are eligible for a refund.

Who is Eligible to Receive an Income Tax Refund?

You are eligible to receive a tax refund if-
  • The advance tax paid by you after self-assessment is higher than your tax liability
  • If the TDS on interest earned from debentures, securities, salary, etc. is higher than the income tax paid after regular assessment
  • If higher income tax was paid due to an assessment error and the error has now been resolved and verified
  • You have paid tax in India as well in a foreign country with whom India has Double Tax Avoidance Agreement (DTAA)
  • Your income tax payable is negative due to the allowed deductions
  • You have not declared investments that offer tax deductions

How is the Tax Refund Processed?

The CPC (Centralized Processing Unit) of the IT department in Bengaluru is responsible for processing tax refunds. After you file your tax returns, if the tax department finds that you are eligible to receive a refund, the refund banker at CPC will receive the instructions for the same.

The refund banker will then process your refund. It can take 20-45 days from the return filing date to receive the tax refund. The refund will either be directly deposited into your bank account, or you will receive a cheque of the refund amount.

Is There Any Interest Paid on Tax Refunds?

Yes, in case if your income tax refund is more than 10% of the taxes you have paid, you are also entitled to receive interest on the refund amount.

Under Section 244A of the IT Act, the tax department is required to pay simple interest at the rate of 0.5% per month on the refund amount. The interest calculation is done from 1st April of the Assessment Year (AY) to the date the refund is processed if excess TDS has been deducted or if the taxpayer has paid additional advance tax.

How to Check the Tax Refund Status?

You can check the status of your refund online by visiting the official e-Payment of Taxes website. Here are the steps you should follow-
  • Visit the portal
  • Enter your PAN, AY, and captcha before clicking on ‘Proceed’
  • The refund status will instantly be made available on your screen

What is Income Tax Intimation Under Section 245?

It is possible that you might still have not cleared your taxes for a previous year. If you are now eligible for a tax refund in this AY, the tax department can adjust the outstanding as per the taxes unpaid and the refund amount. In such cases, the IT department sends an intimation under Section 245 of the IT Act.

The intimation has detailed information about the tax adjustments. You then have up to 30 days to respond to the intimation. If you fail to respond, the tax department will proceed with the adjustments. But if you do not agree to the adjustments or believe that there has been an error, you can follow the instructions in the intimation to log your request online.

Earlier the Returns Verification Sooner is the Processing of Tax Refund

After filing your income tax returns, you have a window of 120 days to verify the same. It is recommended that one should not delay and verify the tax returns as soon as possible. The earlier you verify the returns, the sooner will be the processing of your refunds, if any.

Also, beware of scam tax refund emails that ask you to submit your bank details or follow any link to claim your refund. The IT department will never ask you to submit your bank account details through email.

Keep the points mentioned above in mind, and it shouldn't be difficult for you to receive your tax refund if you have paid more taxes than your actual liability.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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