Claiming Income Tax Refunds

Taxpayers in India can get a refund on taxes paid if the tax that they owe in total is less than the sum of total TDS and advance tax paid. As per current practices, this amount is returned to the tax payer after she/he files her/his income tax refunds. The process typically takes 3-4 months.

So how should one go about claiming income tax refunds? Read on to find out. The first action item is to determine whether or not you are eligible for claiming income tax refunds, there's a fairly bright chance that you don't even know if you are eligible for a refund. Let's begin by understanding the reasons which may make you eligible for an income tax refund:

1. Advance Tax: Sometimes taxes are paid for on an advance basis in anticipation of expected income. If, however, that income does not materialize, then the amount paid for as advance tax can be refunded.

2. Higher TDS Deduction: TDS or Tax Deduction at Source is the deduction of income tax by the person or entity which is paying or initiating the income or money transfer. These deductions can happen on salary, rent, income from FDs, savings deposits, and more.

3. Assessment Error: Undeclared income or expenses result in an error being reflected in your final accounts, leading to excess or under taxation. Depending upon the case you may be eligible for an income tax refund.

4. Double Taxation: Individuals who are citizens of India, but they work in a different country may be liable for double taxation or they could be entitled for refunds depending upon the tax treaty between India and the other country.

Once you know your eligibility for income tax refunds, you need to file for a refund as per the prescribed guidelines. The process is simple and fairly straightforward if you have the required documentation, which we have listed below:

1. Bank statements

2. Salary statements

3. Business income statements

4. Form 16 from employers or banks where investments are made

5. Interest paid certificates

6. Investment proofs and related documentation

7. Relevant insurance documents

8. Form 26AS tax credit extract

Filing tax returns is easy and doesn't require professional help. You need to figure out whether you have to file returns under form ITR 1 or ITR 4. Up to AY 2016-17, this facility was available for form ITR 1 and ITR 4S. Once you have filled the form, you must click on the validate button on the Taxes and Verification sheet. The system will auto calculate refund amount due to you based on the details you have submitted with the form. Due refund amount will be displayed in the 'Refund' row. The final refunded amount may not be the same as what you have claimed as the IT Department will first verify the genuineness of your claims and process it later.

Once processing of return has begun, an intimation is sent to the applicant under section 143 (1) to intimate of any one of the following:

1. Your tax calculations match the one of the IT department and no more tax is due.

2. Your calculation doesn't match the one of the IT department and either your refund amount will be adjusted against it or you will have to pay an additional tax called a tax demand.

3. Your calculation matches with the IT department and refund claim has been accepted.

In case there is a query initiated by the IT department, you may be sent an intimation under a separate section. If you file your returns online, note the amount of the refund and retain a copy of the ITR form generated for further use.

Taxpayers are also liable to receive interest on refund amount as stipulated by section 244A of the Income Tax Act under certain terms and conditions based on whether the refund is of excess payment of advance tax, TDS or self-assessment tax and the date of filing. However, no interest is payable if the amount of refund is less than the 10 percent of the tax liability. Interest received on tax refund are taxable.

Once you have your papers set, you must send a signed physical copy to the assigned address. Your form will mention if you have to send it via post or speed post. Once the department receives your form, it will intimate you via SMS and/or email. The processing may take between one to four months to complete.

Filing tax returns is not as complicated as it sounds. With new online processes, paperwork has greatly reduced and it facilitates quick filing. If you are still unsure, you could ask your Chartered Accountant to guide you through the process.