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What is an income tax refund?

An income tax refund arises when the tax paid by the taxpayer is higher than the tax liability at the time of filing the income tax return. The tax paid by the taxpayer can be an advance tax, self-assessment tax, foreign tax credit, or tax deducted at source. 

How is the income tax refund calculated?

The below table shows how the income tax refund is calculated:

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ParticularsAmount (in Rs)
Total Taxable Income (A)XXXXX
Gross tax liability on total taxable income (B)XXXXX
Less: Foreign tax creditXXXXX
Net tax liability (C)XXXXX
Add: interest on tax liability (Section 234A, Section 234B and Section 234C)XXXXX
Total tax payableXXXXX
Less: Taxes paid (C) (advance tax, self assessment tax, foreign tax credit, tax collected at source or tax deducted at source)XXXXX
Tax payable (If B > C)XXXXX
Tax refund (If B < C)XXXXX

How income tax refund is processed?

The taxpayers file and verify the ITR income tax return providing the details of total taxable income and taxes paid. The ITR must be verified electronically verified through aadhar number OTP, EVC generated through a bank account, or physically verified. For physical verification, taxpayers must post the signed ITR-V (acknowledgment) to the Centralised Processing Centre (CPC) within 120 days of filing the return. 

The Centralized Processing Center, Bengaluru processes the ITR filed. Once the processing is done if the taxes paid is higher than the tax liability, it generates an income tax refund. The refund order is generated and transferred to the Income-tax refund banker. The refund banker then credits the amount to the bank account of the taxpayer.

How is the income tax refund payment done?

the refund can also be made in the following ways:

  1. Account payee cheque

In case the bank account details of the taxpayer are incorrect or missing, the refund is paid through an account payee cheque drawn in favor of the taxpayer

  1. Direct Credit 

Usually, the refund is credited to the taxpayer’s primary bank account directly by the IT refund banker. The primary bank account details are added by the taxpayer while filing the ITR. hence, it is important to add the bank account details correctly to avoid any delay.

How to check income tax refund status online on the NSDL website?

The Tax Information Network TIN is governed by NSDL National Securities Depository Limited on behalf of the Income Tax Department governed by the Income Tax Act, 1961. TIN acts as a repository of tax information in India. 

To track income tax refund status online on NSDL/ TIN website follow the below steps:

Firstly click here, this link will take you directly to the refund status page

Secondly, add the below information

  • Assessment year AY
  • Your PAN number
  • Enter the captcha code as appears in the image

Now click on submit

You will be able to view the status on the screen.

How to check status of  tax refund status online on an E-filing website?

Follow the below steps for an income tax refund status check:

  • Visit the e-filling website here
  • Login to your account. Enter your User ID, Password, and Captcha Code. Your User ID here is your PAN number
  • Click on “View Returns / Forms”
  • On this page, for the ‘Select An Option’, select ‘Income tax Returns’ from the drop-down menu
  • Enter the ‘Assessment Year’ and click on ‘Submit’
  • You will be able to view your ITR filed. Here click on the ‘Ack. No.’
  • Now, the income tax refund status will be available.

What are the types of income tax refund status?

StatusExplanation
Not DeterminedYour ITR has not yet been processed and you can check the ITR processing status after a few days.
Refund PaidYour income tax refund has been credited directly to your bank account or an account payee cheque has been sent
Refund FailedYour refund could not be credited due to incorrect or incomplete bank account details
Refund ExpiredThe refund cheque is valid for a period of 90 days. In case you have not encashed your cheque before the expiry of 90 days, the cheque will expire. You will have to request for issuance of another cheque to the IT department through your account.
The cheque has been encashedThe cheque has been cashed by you and the amount is credited to your bank account.
Refund ReturnedThe cheque was sent to you but it was not received by you. Here the cheque will be returned back to the IT Department. In this case, you will have a request for a re-issue of your refund.
Refund adjusted against last Year’s outstanding demandYou will view this status only if your refund is adjusted. In case you have an outstanding tax demand for any previous years, the refund will be adjusted with the demand. The net amount post adjustment will be paid if any. The IT department will always send you an intimation of such an adjustment.
A taxpayer must respond within 30 days of receiving such an intimation. In case no response is received, the department will go ahead with the refund adjustment. 

Do early processing of return lead to an early refund?

After the submission of ITR, a taxpayer can verify the ITR within 120 days. Now the processing of ITR by CPC starts only once you have verified your ITR. Hence, the earlier you verify your return the sooner it will be processed

Now, once the ITR is processed by CPC at the primary level for arithmetical errors etc, the refund will be issued basis on the tax payable and tax paid. So, if the verification is delayed, the processing and refund will also be delayed. 

Also, nowadays e-verification is more popular and accepted than physical verification. Firstly, the process is online and easy to complete. Secondly, it saves time. The physical verification can take up to 5 days but online verification is done within minutes.

What to do if the refund is not processed at CPC?

There may be instances where the return is not processed by the CPC for some reason and hence no refund is issued. 

Every taxpayer’s records of every assessment year is transferred to the jurisdictional assessing officer. All such cases of unprocessed returns are transferred to the assessing officer. An intimation is sent to the taxpayer when the return is transferred to the AO.

The taxpayer can follow-up with the assessing officer regarding the refund by writing a letter to him/ her.

Interest on Income Tax Refunds 

Many times, you might have noticed that your refund is higher than the expected amount. This is because of the interest you received on the refund amount.

Under section 244A, a taxpayer is eligible for an interest on income tax refund given the below conditions:

  1. Interest is mandatory to be paid if the refund is 10% or more of tax paid.
  2. An interest rate of 0.5% per month or part of the month on the refund amount
  3. The Interest shall be calculated from April 1st of the assessment year till the date of grant of refund. It is applicable only if a refund is due to excess advance tax paid or TDS deducted / TCS collected.

In the event of any discrepancy in the calculation of the interest amount, a taxpayer can raise a request for rectification through his/ her account.

How to claim an Income tax refund?

ITR Filing Due Date

Any taxpayer can claim an income tax refund only if the ITR is filed and it is filed within the due date. Hence, it is crucial for any taxpayer to remember the due date and never miss the deadline

The due date to file ITR is usually 31st July of every financial year. This due date might be changed by the IT department from time to time due to uncertain or unseen circumstances.

A taxpayer must be aware of all the required information for any financial year. These details could be your Form 16, Form 26AS, other income statements, self assessment tax payments, advance tax payments, and tax-saving investments.

You need to fill in all these details in your ITR accurately to avoid missing your refund without any hassle.

File your ITR correctly and timely

You must file your tax return correctly by mentioning the income earned during the financial year, the investments made, claim the deductions and finally, the taxes paid. 

The taxes paid could be in the form of TDS, TCS, advance tax, and self assessment tax.

The tax refund is nothing but the tax paid in excess of the tax payable. Hence it is important to mention this information correctly.

Know Your Refund Amount

It is always better to be informed about whether you have a refund amount to receive or not. If yes then what is the amount. Sometimes we tend to forget this information and don’t track our refund status.

In the case where your return is not processed and it is with the assessing authority, it becomes very important that you know where your refund is held. 

Verify Your ITR

Just like it is crucial to file ITR to claim a refund, it is important to verify your return. Without verification one can say your ITR is not completely filed. The CPC will process your ITR only if it is verified and you receive your refund only if the return is processed. 

Hence verify your ITR with 120 days of the filing of ITR. You can verify online or physically verify your ITR.

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