Tax refund is the amount, which the tax department gives back to a taxpayer who has paid excess taxes.
How does a tax refund arise?
As mentioned earlier, tax refund arises due to excess payment of taxes to the government.
From a salaried individual’s point of view, tax refund generally arises when the employer deducts excess taxes from his salary.
How to claim tax refund?
You need to file an income tax return to claim your tax refund. The amount of refund receivable is computed and shown in the tax return.
Am I eligible for interest on my tax refund?
If the amount of refund is more than 10 per cent of the total tax payable for that particular year then you are entitled to receive simple interest on your tax refund.
Interest is computed @ 0.5 per cent per month on the amount of refund. The interest is computed from the beginning of the next financial year till the date of grant of the refund.
Is the refund taxable?
The tax refund is not your income as it is just a receipt of excess taxes paid and therefore the amount of refund is not taxable.
However, interest received on tax refund is taxable.
The rate of tax would be as per your applicable slab rate. You may include it in the taxable income of the year in which such refund is received.
In order to claim tax refund is it necessary that tax return should have been filed within the due date?
You can claim tax refund even if you have filed a belated tax return (a return filed after the due date is called a belated return)
Generally, how long does it take to receive the refund?
If you have filed your return electronically, then in most cases the refund is issued within 4 to 8 months of the date of filing.
If the return in filed physically at the jurisdictional tax office then it often takes much longer to process.
What to do if you do not receive your tax refund?
If you have e-filed your return and you do not receive your tax refund within a reasonable time you can follow up with the Centralized Processing Centre (CPC) of the Income Tax Department on the contact number provided on the e-filing portal of Income Tax Department. The numbers are 1800 4250 0025, and 080-2650 0025.
If it is still not redressed, or if you have physically filed the return, then you may write a letter to the jurisdictional Assessing Officer. Lastly, you can write to the Jurisdictional Commissioner of the Income Tax with a copy to the Grievance Cell and the concerned Income Tax Officer. This letter may be accompanied by the copies of previous letter/s written to the Income Tax Officer and a copy of the tax return filed.
How is the refund received?
If you have opted to receive your refund by direct credit to your bank account, you would receive it directly into the bank account as long as the refund amount is up to Rs. 50,000.
In other cases, you would receive a ‘Refund Order’ which is similar to a cheque. To prevent misappropriation of your refund, your bank account number as mentioned in your tax return form is written over the refund order.
I am claiming a tax refund while filing my tax return. Is it something to cheer about?
Frankly, there is nothing to cheer about.
In most cases, tax refunds arise due to lack of tax planning or poor tax planning.
As mentioned earlier, tax refund is the refund of excess taxes, which you have already paid to the government. So the tax refund is like getting your own money back after a few months or sometimes after many months.
At times the refund gets stuck for some or the other reasons. Then you need to follow up for the refund with the tax department. Claiming very high amount of tax refund may also increase the chances of getting your return selected for scrutiny assessment.
Thus, claiming tax refund is no great news. You lose on ‘time value of money’ and at times have to go through the hassles of following up for refunds or at times face scrutiny assessment.
What can I do to avoid claiming tax refund? (From a salaried individual’s point of view)
Identify all the tax benefits, which you are entitled to. In most cases, such benefits would include house rent allowance exemption, LTA exemption, medical reimbursement exemption, tax benefits on housing loan, deduction on payment of registration fees and stamp duty for purchase of house, other tax saving investments (such as PF, PPF, ELSS, Life Insurance, children tuition fees etc.) deduction for handicapped dependants, deduction on payment of mediclaim insurance premium, deduction on payment of interest on education loan, etc.
File your tax declarations mentioning all the tax benefits you are entitled to, to claim with the Payroll department of your company soon after the start of the year.
If you do not file tax declaration the Payroll may deduct taxes as if you are not eligible to claim any tax benefits and this would then result into excess deduction of taxes.
Filing tax declaration ensures that Payroll would deduct taxes only after considering the tax benefits for which you have claimed in the tax declaration form.
Submit proofs for all the tax benefits claimed within the due date declared by your Payroll department. These proofs may include medical bills for claiming medical reimbursement exemption, rent receipts for claiming HRA exemption, LTA bills/tickets for claiming LTA exemption, receipts for tax saving investments, tax certificate issued by housing finance companies, etc.
If you happen to change your job in between the year make sure that you submit these proofs, especially rent receipts, LTA bills/tickets and medical bills, to the Payroll before leaving the company.
If you do not submit the proofs then the employer will deduct excess taxes, which you will have to claim as refund at the time of filing your tax returns.