income tax
Taxpayers may occasionally pay more tax than necessary, rendering them eligible for a refund. This guide outlines the key provisions and procedures for claiming refunds for excess tax payments in a clear manner.
A taxpayer can claim a refund when their total tax payments—including advance tax, TDS, self-assessment tax, and regular assessments—exceed the tax owed. The pertinent regulations are detailed in Sections 237 to 245 of the Income Tax Act.
Under Section 237, a refund can be claimed if the taxpayer demonstrates to the Assessing Officer that their tax payments surpass their tax liability for the respective assessment year.
Refunds are typically claimed by the individual who made the tax payment. However, Section 238 outlines specific instances permitting others to file refund claims:
To initiate a refund claim, taxpayers must complete Form No. 30. Following the Finance (No. 2) Act, 2019, effective September 1, 2019, refunds can only be claimed through an income tax return filed by the deadlines outlined in Section 139.
If the primary deadline (usually July 31) is missed, a belated return can be filed until December 31 of the assessment year to obtain the refund. If this deadline also passes, a condonation application must be submitted under Section 119(2)(b) and await approval from tax authorities.
Important aspects of the condonation process include:
Authority Limits: The Pr.CIT and CsIT can approve claims up to ₹10 lakhs, while Pr.CCIT and CCsIT can approve claims up to ₹50 lakhs. Claims exceeding ₹50 lakhs must be escalated to the CBDT.
Six-Year Limitation: Condonation applications cannot be accepted beyond six years from the relevant assessment year, which authorities must strictly adhere to.
Additional Considerations: If a refund is related to a court decision, the time spent on legal proceedings does not count towards the six-year limit, provided the condonation application is submitted within six months of the court ruling.
Verification Requirements: Authorities must verify claims for authenticity and significant hardship, conducting any necessary inquiries.
Belated Claims: Late refund claims may be accepted under similar conditions, accompanied by additional assessability and interest requirements.
Specific Circumstances: Certain cases involving long-term government bonds may be exempt from the six-year stipulation for refund claims.
The draft Income Tax Bill, 2025, initially proposed that refunds would be allowed only if returns were filed on time (Clause 263(1)(a)(ix)). However, the Income Tax Department clarified that refunds can still be claimed via belated returns and condonation applications, in line with existing practices.
Section 240 states that refunds resulting from judgments in appeals or related proceedings do not require a separate claim unless:
Interest on delayed tax refunds is governed by Section 244A:
No interest will be applicable if the refund amount is under 10% of the tax assessed under Section 143(1) or regular assessments.
Additional interest on refunds linked to appeal orders will be granted if delays exceed the designated timeframes outlined in various sections, including 250 and 254.
The Assessing Officer may withhold a refund when a notice under Section 143(2) indicates that granting the refund could jeopardize revenue, subject to the Principal Commissioner's approval.
Taxpayers are not entitled to interest on refunds delayed due to their actions or those of a deductor. The Principal Chief Commissioner has the final say on disputes regarding these exclusions.
If an order affects the refund entitlement under any relevant sections, such as Sections 143 or 254, interest will be adjusted according to the new refund amount. If the adjusted interest decreases, a demand notice for repayment will be issued to the taxpayer.
Under Section 245, tax authorities possess the authority to offset refund amounts against outstanding tax liabilities, requiring notifications to be issued prior to executing such offsets.
It is crucial for taxpayers to understand their rights to claim refunds for excess tax payments. Familiarity with the associated processes and eligibility criteria, along with timely filing of returns as stipulated in the Income Tax Act, is essential for a smooth refund experience.