IT refund: How it’s calculated, how it’s processed, and how to check its status

Frequently asked questions about income tax refunds

IT refund: How it’s calculated, how it’s processed, and how to check its status

Income tax refund provisions have remained unchanged under the new tax regime. An incoming IT refund always brings cheer to the taxpayer. However, it isn’t uncommon for them to have certain doubts. For instance, how exactly are income tax refunds calculated? What is the process of claiming a refund? Is interest applicable on IT refunds?

Read on for answers to these frequently asked questions:

When does the income tax refund become due?

If a taxpayer pays more than what is required to be paid in an assessment year, they are granted a refund. The basic provisions of the IT Act under Sections 237 to 245 deal with IT refunds. The law essentially stipulates: When the tax paid by the taxpayer (this could be in the form of advance tax or tax deducted/collected at source or self-assessment tax or payment of tax on regular assessment) is more than the required amount, they will be eligible to claim a refund of the excess tax paid.

How does one calculate the amount due?

The income tax assessee should calculate the amount due in their computation of income. They should first calculate their income from all sources and calculate the tax amount due. From this figure, the amount that has already been paid is deducted. If the amount paid is more than the amount due, the assessee is entitled to a refund.

The following table shows how income tax refunds are represented in an IT acknowledgement report:

Gross total income

10,86,391

Total deductions under Chapter VI-A

13,198
Total income 10,73,190
Deemed total income under AMT/MAT 10,73,190
Current year’s loss, if any

77,899

Net tax payable 1,39,250
Interest and fee payable 0
Total tax, interest, and fee payable 1,39,250
Taxes paid (advance tax, TDS, TCS, self-assessment tax) 1,54,041
Refund 14,790

If the tax already paid (B) is higher than tax amount due (A), the assessee will get a refund of the excess amount paid.

RelatedAre you an NRI? Here’s how you can claim a TDS refund

How can I claim refund from the IT department?

An income tax assessee can claim tax refund only through the filing of return of income within the time limit prescribed under Section 139. With the online submission of returns, they must be electronically verified with EVC (electronic verification code) or OTP (one-time password), or physically verified by sending a signed copy of the ITR (income tax return) to the CPC (Central Processing Centre) to complete the filing of return. Early verification will enable early processing of return and the refund will reach you faster.

In case someone has failed to file their return on time, they can still claim a refund on a belated return of income submitted before the completion of the assessment year. The income tax authority can condone late filing for a maximum of six years and allow an assessee to file a belated return of income claiming a refund of income tax subject to some restrictions.

If any refund has become due on winning an appeal, the Assessing Officer shall refund the amount to the taxpayer without their having to make any claim on that behalf. However, there may be cases where an assessment is either set aside or cancelled and a new order of fresh assessment is directed. In such cases, the refund would be due only after the fresh assessment is made.

How do I check the status of my IT refund?

You can check your income tax refund status online by simply logging on to the NSDL portal. To gain access to your records, you will need to enter your PAN, the relevant assessment year, and maybe a password or captcha image. Thereafter you can access the refund details and see the status of the refund in Form 26AS in the ‘tax credit statement’. In case the CPC does not send you the refund, you should follow up by writing to their jurisdictional officer.

How are refunds processed by the IT department?

Once the verified ITR is received by the IT department, they will verify the details filed and check the accuracy of the amount claimed as a refund. Once the amount is verified, the application is processed and it will be either credited to your bank account or sent to you as a paper cheque – depending on the payment option stated by you.

If the assessment by the IT department is different, you will get the amount as calculated by them. You will receive Form 143[1](1) which details their calculation. You will also receive notifications of all proceedings. Refunds are generally credited within 1-4 months.

Related: Should you stick to the old tax regime or move to the new one?

Is interest applicable on IT refunds?

Section 244A of the IT Act gives the information regarding interest on refunds due to an assessee which has been paid with delay. This is only applicable if the refund amount due to the assessee is 10% or more of the total tax amount due from them. Once the refund is due, interest on the said refund is paid at the rate of 0.5% per month or 6% a year. 

The time period for which interest is paid on the refund depends on the way tax was paid:

  • If the refund is due to advance tax or TDS or TCS, interest on the refund is calculated from the date of the beginning of the assessment year.
  • If the refund is due to self-assessment tax paid, interest is calculated from the date of filing the return or the date of paying the tax, whichever is later.

Can a refund be set off against unpaid IT liability?

At times it may happen that an assessee who has outstanding tax dues for the previous year is due to receive a refund. In such a case, Section 245 of the IT Act empowers the assessing officer to adjust the IT refund against the unpaid dues. This can be done only after giving proper notice about the impending action to the taxpayer.

Does a separate form 30 have to be filed to claim an IT refund?

No While this was the case earlier, from 1 September 2019, the Finance (No. 2) Act, 2019 amended this provision to provide that the refund can be claimed only through the filing of return of income within the time limit prescribed under Section 139.

Is interest on refund available even in case of belated filing of return?

No. As per Circular 9/2015 [F.NO.312/22/2015-OT], dated 9 June 2015 issued by the Central Board of Direct Taxes (CBDT), no interest will be admissible on belated claim of refunds.

RelatedDifference between Tax Exemption, Tax Deduction and Tax Rebate

Is a taxpayer eligible for additional interest if a delayed refund has been granted as a result of an appeal?

Yes. If a refund arises due to an order that is passed as a result of an appeal under Sections 250, 254, 260, 262, 263, or 264, and is delayed beyond three months from the end of the month in which the order was received by Commissioner of Income Tax, the assessee is entitled to an additional interest amount. This is calculated at 3% p.a. from the date following the previous due date till the date on which the refund is finally granted.

Disclaimer: This article is intended for general information purposes only and should not be construed as tax or legal advice. You should separately obtain independent advice when making decisions in these areas.

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