How to Claim Tax Refund of Excess Tax Paid by the Taxpayer

To claim Tax Refund of excess tax paid by the taxpayer is both easy and difficult. It is easy if you claim tax refund at the time of filing of Income tax Return i.e. ITR. For example, the last date of filing of Income Tax Return for FY 2015-16 or AY 2016-17 is 31st July 2016. The tax refund for excess tax paid by me for FY 2015-16 can be claimed at the time of filing of ITR i.e. on or before 31st July 2016. In fact, the system automatically calculates the Tax Due and Tax Paid. Any excess amount is shown as a tax refund in the ITR and can be claimed provided all other details are correct. Before we proceed, i suggest you go through my post, Income Tax – 51 Important Points.

Recently, i received multiple queries from the readers on how to claim a tax refund. Thanks to the readers for suggesting this topic. In this blog, we will discuss some of the common scenarios resulting in Tax Refund. How to reconcile the Tax Paid and Tax Due? Lastly, How to claim a tax refund? As i shared, the best possible scenario is to claim tax refund at the time of filing of Income Tax Return. In some cases, it is not feasible and the taxpayer has to initiate a separate process to claim a refund. Let’s check out the same.

Tax Refund – Common Scenarios

1. Excess TDS deducted:

In my post, Income Tax Investment Proof Submission i discussed some of the common mistakes from employee’s end. For example, the employee fails to submit tax proofs on time. In this case, excess TDS is deducted. Normally the last date of proof submission is in the month of Dec or Jan. Due to various reasons employee could not submit investment proofs on time. The most common miss is related to HRA or House Rent Allowance. The delay can be from owner’s end like delay in issue of rent receipts. Some of the owners are reluctant to share the PAN thus employer disallow HRA tax benefits to the employee.

In some cases, there is a disconnect between the employer or an employee on whether the deduction is allowed or not. Whatever be the case, it results in excess TDS deducted. Therefore, it necessitates claiming a tax refund by the taxpayer/employee. Here i am assuming that all the deductions claimed by the employee are legitimate.

2. TDS in case total income is less than Taxable Limit:

I discussed it in detail in my post, How the changes in TDS Rules will impact you?. The TDS/excess tax is deducted if the taxpayer fails to submit form 15G (For Non- Senior Citizens) or 15H (For Senior Citizens) in case income is less than taxable limit. In such cases, the taxpayer can claim the tax refund against the TDS deducted.

3. Error in Tax Calculation:

Recently, i received a mail from one of my readers. He wrote that because of wrong tax calculation by his CA, he deposited excess tax of Rs 60,000 through Self-Assessment tax. Now how he should claim a tax refund? Thankfully he noticed the anomaly before the filing of income tax return. I suggested him to claim a refund at the time of filing of ITR.

In my opinion, you cannot rely 100% on a 3rd party for tax related matters. It is advisable to calculate your income tax liability on your own to avoid any such blunders. I found the income tax calculator on the website of income tax department quite useful.

4. Advance Tax Paid:

In some cases, the taxpayer ends up paying excess advance tax.

How to reconcile Tax Paid and Tax Due?

The simplest way to reconcile is with your form 26AS. You can calculate your tax dues using reliable Income Tax Calculator. After that, you can reconcile it with your Tax Credit Statement i.e. form 26AS. Form 26AS provides you the detail of income tax deposited with the Govt/Income Tax Department.

A word of caution, you should cross verify details of form 26AS. In one of my case, the TDS was not deposited by one of my previous employers. I received notice from Income Tax Department. It is a 6-year-old case. Thankfully, i have a physical copy of my form 16. Therefore, there is a possibility that TDS is deducted but not deposited. You should always demand TDS certificate from the Deductor as the case may be for your records for future reference.

How to claim a tax refund?

In case you have already filed income tax return and forgot to claim tax refund then no need to worry. I am highlighting two options you can exercise to claim a tax refund.

1. File Revised Income Tax Return:

A taxpayer can file revised Income Tax Return anytime before the expiry of 1 year from the end of the relevant Assessment Year or before the Assessment of your ITR by AO, Whichever is earlier. The revised ITR can be filed u/s 139(5). In the revised ITR you can claim a tax refund.

Let’s take an example as shared earlier for FY 2015-16. The FY ends on 31st Mar 2016. The AY is 2016-17. The last date of filing the ITR for FY 2015-16 is 31st July 2016. The AY for FY 2015-16 will end on 31st Mar 2017. Therefore, the expiry of 1 year from the end of the Assessment Year is 31st Mar 2018. In other words, ITR of FY 2015-16 can be revised till 31st Mar 2018 provided the ITR is not assessed by the AO. Just to add that Assessment u/s 143(1) is not considered as Assessment for the filing of revised ITR.

2. Claim tax refund u/s 237 to 245

In this option, you can approach your AO and satisfy him with all the necessary proofs that you paid excess tax. If the AO is satisfied with the claim of a taxpayer then a refund can be issued of the excess tax paid. As a thumb rule, only the taxpayer is eligible to claim the tax refund. There are few exceptions to this rule. Besides taxpayer following two categories are also eligible to claim a tax refund on behalf of a taxpayer.

(a) Clubbing of Income: Clubbing of Income provisions are applicable in case the income of the minor child is clubbed with the income of a parent. In some case, it is applicable in case a husband invest in the name of a non-working wife. The income of wife from the investment, in this case, is clubbed with the income of a husband. In such cases, minor child or wife is also eligible to claim a tax refund in case the excess tax is paid.

(b) Unforeseen Circumstances: Suppose i am a taxpayer eligible for tax refund. In the case of an unfortunate event of my death/incapacity, my legal heirs/representative can claim a refund on my behalf. The unforeseen circumstances also include insolvency or liquidation. It is also applicable for companies. In other words, if an individual is unable to claim or receive any refund then the legal representatives can claim a refund on the behalf of the taxpayer.

The tax refund should be claimed u/s 237 to 245 only if the taxpayer is unable to claim the same through original/revised ITR filing as i explained earlier. You can fill form 30. The last date to claim the refund is before the expiry of 1 year from the end of the relevant Assessment Year.

If there is a delay beyond the defined timeline then you may apply for condoning such delays. In layman terms, you may apply with IT department to forgive or pardon you for the delay in applying for a tax refund. Depending on the claim amount, the officers of various ranks are designated by IT department to accept/reject such applications. The application is called condonation application. The concerned authority has the time of 6 months to decide on the application from the end of the month in which application is submitted. For example, if you submitted a condonation application on 10th July 2016 then your application be decided on or before 31st Jan 2017.

The condonation application is accepted only up to 6 years from the end of the Assessment Year. For example, for FY 2015-16 / AY 2016-17. I can submit condonation application till 31st March 2023 i.e. 6 years from 31st March 2017. Though i can submit the application but it does not guarantee that my application will be accepted for a tax refund.

If your income tax return is already assessed then you can submit an application for supplementary claim of refund. In this case, interest will not be paid for the delay in refunds. In other cases, rules related to the interest on delay in refund are bit complicated. Let’s discuss some of the most common rules

Interest on delay in Tax Refund

The interest for delay in a tax refund is calculated @ 0.5% for every month of delay. The fraction of the month is considered as a full month. The interest is calculated from the 1st April of AY till the date of issue of refund. To clarify with the same example as i shared earlier. Assuming i am eligible for a tax refund for FY 2015-16. I filed my return on 28th July 2016. The AO issued a refund on 20th Sep 2016. I am eligible for interest on delay in a tax refund from 1st April 2016 to 20th Sep 2016. Therefore, i will receive 0.5% interest on a refund for 6 months. In this case, Sep’16 will be counted as a full month. The interest is due only for the tax refund arising out of TDS/TCS/Advance Tax.

In the refund cases other than TDS/TCS/Advance Tax, the interest is paid from the date of payment of tax or penalty till the date of issue of refund.

Interest is not due in following cases

• If the tax refund is less than 10% of the total tax dues calculated/assessed by the IT Department.
• Refund is delayed because of the taxpayer. For example, delay from taxpayer’s end in providing any information sought by the Income Tax Department.

Last but not the least, always remember that Income Tax department has the authority to set off the refund against the amount due from the taxpayer. For example, if my tax refund is Rs 10,000 and tax due is Rs 8,000. In this case, Rs 8,000 will be set off against the tax refund of Rs 10,000. The net refund of Rs 2,000 will be processed.

I tried to cover all the important points related to a tax refund in this post. Hope you liked the post.

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