Income Tax Refund: Eligibility, Procedure and Interest

by Shakshi Bharti | Jun 11, 2024 | Income Tax | 0 comments

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Income Tax Refund: Eligibility, Procedure and Interest

A taxpayer becomes eligible for an Income Tax Refund when they have paid more taxes than their actual tax liability, including any interest. This overpayment can come from sources such as advance tax, self-assessment tax, or TDS (Tax Deducted at Source). Therefore, it is common for taxpayers to want to know the status of their ITR (Income Tax Return) refund.

Eligibility of Income Tax Refund

To get an income tax refund, a taxpayer needs to file an income tax return. Here are the situations where you can claim a tax refund:

Advance Tax Overpayment: If the advance tax paid based on estimated income is more than the actual tax you owe.
Excess TDS: When tax deducted at source (TDS) from your salary, interest, professional fees, or other incomes is higher than your actual tax liability after regular assessment.
Overpaid Self-Assessment Tax: If the self-assessment tax you paid exceeds your actual tax liability.
Double Taxation: If you pay taxes on income both in India and another country with which India has a double taxation avoidance agreement.

How to Claim an Income Tax Refund:

The Income Tax Department will not automatically issue a refund for overpaid taxes. Therefore, it is essential to file an income tax return to claim your refund. When filing, you must declare all income, deductions, taxes paid, and provide their details (such as challan details) to the Income Tax Department.

Once you have submitted your income tax return, you need to wait for the Income Tax Department to assess it. Here’s what happens next:

Post-Filing Process

After your return is processed, you will receive an intimation under section 143(1). This notice will include a comparison of the income and tax calculations as per your return and the Income Tax Department’s records.

Matching Refund Amounts: If the refund amount in the intimation matches what you claimed in your return, the refund is accurate. You can track the status of your income tax refund on the e-filing portal or the NSDL website.
Discrepancies: If there is a difference, you need to verify the calculations to find the reason for the mismatch. If there are errors, you can correct your return under section 154(1).

Refund Timeline

The Income Tax Department processes returns in batches. Generally, after e-filing and e-verifying, it takes about 45 to 60 days to process a return. Once processed, the refund is typically credited within a week.

Common Reasons for Refund Delays

Several factors can cause a delay in receiving your income tax refund, including:

Incorrect bank details (account number, IFSC code, name mismatch, MICR code, etc.)
Bank account not pre-validated or nominated for refund
Incorrect details (payment date, BSR code, challan number)
Discrepancies between Form 26AS and the tax return
Pending KYC for the account holder

If your refund fails, you can request a re-issue of the refund.

Interest on Delayed Refunds

If you do not receive your refund on time, the Income Tax Department pays interest on the delayed refund. However, no interest is payable if the refund amount is less than 10% of the tax determined under section 143(1) or regular assessment.

If the refund exceeds 10% of the total tax payable, the taxpayer is entitled to receive simple interest on the refund under section 244A of the Income Tax Act. The interest accrues at a rate of 0.5% per month or part of a month.

Interest Calculation: The interest is calculated from April 1 of the following financial year until the refund date.
- For example, if Surbhi has a total tax liability of INR 30,000 and has paid INR 44,000, she can claim the excess INR 14,000 as a refund. If the refund is delayed, she will receive interest at 0.5% per month, as INR 14,000 exceeds 10% of her total tax liability.

Taxability of Income Tax Refund and Interest

Income Tax Refund: The refund itself is not considered income and is not taxable.
Interest on Refund: The interest received on the refund is taxable under “Income from other sources.” When filing returns for the financial year in which you received the refund, you must pay tax on the interest according to your tax slab rate.

Reasons for delay in income tax refund

Sr. No.	Refund Status	Meaning	Action to be taken
1.	Return not E-verified.	The return is successfully submitted but e-verification is pending.	E-verify the return on the Income Tax Portal Or use the Finodha Tool.
2.	The bank account is not pre-validated on the Income Tax Portal.	The Bank account is not linked to the Income Tax Portal.	Request for Refund Reissue after adding and validating a bank account on the IT Portal.
3.	The return is pending processing with the Assessing Officer.	The IT department is taking time to process your request.	Ensure that the return has been e-verified within 30 Days or can submit a grievance on IT Portal.
4.	Mismatch in the TDS/TCS claimed.	There is a mismatch in Form 16 or Form 26AS and TDS/TCS claimed.	Have to file an online response by logging into the income tax portal or file a revised return.
5.	Defective Return u/s 139(9)	Return was incomplete or improper.	Have to respond to the pending proceeding by logging into your income tax account.
6.	Return processed and tax demand determined	After processing the return the tax department is of the view that some taxes are still due.	Check details in the intimation received u/s 143(1) and submit a response accordingly.
7.	No Demand No refund found	It means ITR has been duly processed and there was no refund due	Check details in the intimation received u/s 143(1) and submit a response accordingly.
8.	Refund adjusted against Demand	It means that the refund was payable but the same has been adjusted against some taxes payable for previous years	Check and submit response to the notice received for previous years.