Easy Guide to Income Tax Refund with Interest for Taxpayer

Taxpayers often make mistakes of paying extra Income tax against the applicable tax. In such mistakes, taxpayers are eligible to get a refund of the excess tax amount paid by him. Today in this article we are going to talk about all the provisions related to the claim of Income Tax refund of excess IT paid by the taxpayer.

Basic Provisions

If the taxpayer by mistake paid the excess tax amount than the applicable tax (whether it is advance, TCS/TDS, self-assessment, or regular assessment tax) then the taxpayer is eligible to get the refund of the excess tax paid by him/ her. In the matter of refund of tax provisions under Section 237 to 245 are applicable.

When Does the Income Tax Refund Arise?

Section 237 states that ‘ If a taxpayer can prove in front of the Assessing Officer (AO) that the tax paid by him or on his behalf or treated as paid by him or on his behalf for any previous year exceeds the applicable tax amount then he\ she is eligible for the refund of the excess amount.

The Person Entitled to Claim an Income Tax Refund

Usually, the person who has paid the tax can claim the income tax refund of the excess tax paid, but there are some special cases where a person other than the taxpayer can also claim the refund. More information and provisions related to certain special cases are engraved in Section 238. According to Section 238, the following persons can claim the refund of tax.

• If the income of a person is considered in the total income of another person under any provision of Act (clubbing provisions, the income of minor child clubbed with the income of parent), then refund can be claimed in respect of the clubbed income.
• In case of death, insolvency, incapacity, liquidation or any other reason due to it if the person is not able to claim or receive the refund then his legal representative or guardian or trustee or receiver (as the case may be), can claim or receive the refund on the behalf of the person or for the benefit of that person or even for his estate.

How to Claim a Tax Refund?

Before 01-09-2019 Form No. 30 was appropriate for it but on the 01-09-2019 Finance Act (No. 2), 2019 has made some modifications in this provision, and now, the refund can be claimed just by the filing of return of income before the due date prescribed under Section 139.

Circular No. 9/2015 [F.NO.312/22/2015-OT] released on 9-6-2015 was released by the Central Board of Direct Taxes (CBDT) for the purpose of dealing with the matters related to forms or application filed for condonation of delay in filing Income Tax returns or claiming refund and returns claiming to carry forward of the loss and set-off thereof. The circular has been issued for surplus all the earlier released instructions/circulars/guidelines issued by CBDT, in the matter of above. The circular also features guidelines on the conditions for condonation and also features the process that needs to be followed for taking decisions in such matters. The statements in the circular are as follows:

1. The Principal Commissioners of Income-tax (Pr.CsIT) or Commissioners of Income-tax (CsIT) will need to be empowered to accept or reject such applications submitted to claim if the claim amount is not above Rs. 10 lakhs for one assessment year. The Principal Commissioners of Income-tax (Pr.CsIT) or Commissioners of Income-tax (CsIT) will be granted the power to accept or reject such applications or claim requests if the claim amount of such claims is in between Rs.10 lakhs to Rs. 50 lakhs for any financial year. The CBDT will take care of applications or claim requests for the amount exceeding Rs.50 lakhs
2. The condonation application for claiming the refund or loss can’t be filled after 6 years from the end of a financial year for which such a tax refund application or claim request is to be made. Along with CBDT, all authorities have to take care of this limit. The received condonation application needs to be disposed of within six months from the end of the month in which the application was received by the authority
3. If the refund claim is the result of a Court order then the period for which any such process was pending in front of any Court of Law will be ignored while calculating the indicated period of six years, provided in these type of condonation application is filed within six months from the end of the month of receiving Court order or the end of financial year whichever is later
4. The power of accepting or rejecting the application within the financial limits will be in control of the Pr.CCsIT or CCsIT or Pr.CsIT or CsIT if the claims are subject to Following conditions:
• Before considering the case under Section 11 9(2)(b), the income or loss declared and/or refund claimed need to be verified and have to be correct and genuine and also need to be ensured that the case is of genuine hardship on merits
• The Pr.CCIT/CCIT/Pr.CIT/CIT attending the case have the power to direct the jurisdictional AO to investigate and make inquiries or scrutinize the case as per the provisions of the Act to discover and verify the correctness of the refund request or claim
5. A delayed application for supplementary claim (Claim after completion of assessment for the same year ) of refund can be accepted for condonation if the other conditions from above are fulfilled. The powers of accepting or rejecting the tax refund claim within the limits come under Pr.CCsIT/CCsIT/Pr.CsJT/CsIT in such case of returns claiming refund and supplementary claim of refund will be subject to the further conditions which are listed below:
• Assessee’s income is not accessible to any other person under any provision of the Act
• On the belated claim of refunds, No Interest will be applicable.
• The refund emerger due to the excess tax deducted or collected at source and/or advance payment of excess tax and/or extra tax paid of self-assessment tax as per any provision of the Act
6. If the appellant made an investment in 8% Savings Bonds, 2003 which is taxable and issued by the Central Government and choose the option of a scheme of cumulative interest at maturity of the scheme, but accounted interest on the mercantile basis and on above that the intermediary bank has deducted tax at source on the total amount of interest paid without considering the accrued interest or TDS at the time of maturity, over various FY concerned then the six-year time limit will not apply for such refund claims
7. The Circular will take care of all such applications or refund claims which are pending on the date of issue of the Circular for condonation of delay as per section 11 9(2)(b)
8. The CBDT has the power to investigate any grievance arising due to an order passed or not passed by the authorities mentioned in para 1 above and issue suitable directions to them for proper implementation of the Circular. However, no review of or appeal against the orders of such authorities would be entertained by the CBDT
9. The CBDT reserves the power to investigate any complaints passed or not passed by the authorities which are considered in para 1 above and CBDT can also issue guidelines for proper implementation of the circular. However, CBDT doesn’t have the power to review the appeals or appeals against the orders of these type of officers

Refund on appeal

Section 240 states that if the refund converts to due after any order passed in appeal or through any other measure under the Act then the Assessing Officer (AO) shall refund the relevant amount to the taxpayer there will be no need to make a claim on his behalf. Usually, this is provided in the Act. However,

• In the case when an assessment is put on hold or canceled and a fresh assessment is made due to the provided direction, the refund, if any, will be made due to such fresh assessment
• When an assessment has been canceled then the refund will become due only if the excess amount of the tax payment is of the tax applicable on the overall income returned by the applicant or taxpayer

Interest on Delayed Income Tax Refund

Sometimes taxpayer doesn’t get the refund in time or in due time in such cases they can get interest in it, as per the provisions under section 244A which states:

• If the refund is not attracting any tax deducted or collected at source or tax paid as advance tax, then the taxpayer claims interest as calculated on the rate of one-half percent for each month or part of a month. Interest in these cases will be granted for a period starting from 1st day of April of the FY and till the date when the refund is granted, in case if the return of income is furnished in the due period of return filing as per section 139(1) then interest will be calculated from the date of IT return filing of income till the date when refund is granted
• In the case where the refund is not coming under the tax paid as self-assessment tax then the taxpayer can receive interest which will be calculated on the rate of one-half percent for every month or part of a month for the period starting from the date of filing return of income or made tax payment, whichever is later, up to the date on which the refund is granted.
• If the refund amount is less than 10% of the tax as stated under section 143(1) or tax defined as per the regular assessment then no interest will be paid
• In other cases from above, the interest shall be calculated at the rate of one-half percent for every month or part of a month and it will be calculated for the period starting from the date of payment of tax or penalty (the date on and from which the amount of tax or penalty specified in the notice as per section 156 is paid excess to the demand )  up to the date on which the refund is granted

Interest on a Tax Refund Which Arises Out of Appeal Effect

If the refund is emerging due to giving effect to certain order as per section 250/ section 254/ section 260/ section 262/ section263 or section 264, is taken much time as prescribed under section 153(5), in which time period is prescribed as 3 months from the end of the month in which CIT received the order, the taxpayer is eligible to receive an additional interest at the 3% rate per annum, for the period starting from the date of expiry of the prescribed or allowed time under section 153(5) up to the date on which the refund is granted.

Interest on Refund of TDS to the Deductor

Where the refund becomes due because of the deductor concerning the TDS or TCS paid to the credit of the Government then those deductors can receive simple interest extra than the said amount, then the simple interest will be calculated at one-half percent rate for every month/part of a month which comes in the period, from the date either on which claim for refund is made in the required form or on which the tax is paid (where refund emerging on account on which an order under section 250 or section 254 or section 260 or section 262 is being applied till the date on which refund has been granted.

Withholding of Tax Refund in Particular Cases

In cases where assessee received a notice under section 143(2) and the Assessing Officer (AO) belive that granting the refund will have an adverse effect to the revenue, here AO after taking approval of Principal Commissioner or Commissioner can put the refund on hold till the date on which the assessment has been made. It is Applicable to w.e.f. the fiscal Year 2017-2018.

Certain Cases With No Interest

In cases, where the process is resulting in the refund are delayed for the reasons attributable to the taxpayer or the deductor (whether wholly or in part). In such cases, the period of delay payable to him for the same will be excluded from the period for which interest is payable. In these cases, the taxpayer will not be entitled to any interest/ refund. Additionally, the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner will take the decision on the period to be excluded, and their decision will be considered final.

Variation in the Income Tax Refund Amount

Where, due to an order under section 143(3) or section 144 or section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or any order of the Settlement Commission as per section 245D(4), the refund amount on the basis of calculated interest need to be paid has been increased/ reduced as per the order, then the rate of interest will be increased or decreased as per the order received.

If interest is reduced: The Assessing Officer can send the notice of demand in the form specified by the act and to specify the excess interest amount and require him to repay such amount.

Power of Tax Authorities to Adjust the Income Tax Refund

Sometimes it happens that refund is remaining to the taxpayer for some assessment year/ years and maybe some tax demand remaining to pay by the taxpayer’s side in these cases section 245 makes the tax authorities empowered to do the settlement of the refund. Section 245 also states that such action can be taken only after notifying the taxpayer in writing about the action.