Written by : Knowledge Centre Team

2024-08-02

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Income Tax Refund: How to Claim full Refund of Income Tax?

An income tax refund happens when there is a mismatch between tax paid and your actual tax liability. You may realise that you have a tax refund at the time of filing your Income Tax Return (ITR). After you have filed your ITR and the income tax officer assessing the return finds it to be in the order he/she may approve your income tax refund.

This is usually seen as a bonus income, as TDS rates are far lower than the income tax slab rates.

What is Income Tax Refund?

An income tax refund is a state of reimbursement to a taxpayer when he pays a higher tax in the given financial year (FY) than your final assessed liability. Income tax refunds are possible when you have been paying the compulsory advance tax or have TDS deductions on your income.

At the time of filing an income tax return (or ITR), you can estimate the possible tax refund. The excess tax you have paid will be returned to you as a refund under Section 237 of the Income Tax Act, 1961. The income tax department will sanction the tax refund only after thorough verification of the income tax return filed.

The additional tax paid does not attract any interest. Thus, you can avoid paying excess tax and rather invest the money. You should estimate your possible tax liability for the year in advance and adjust your advance tax payments accordingly.

Eligibility Criteria for Income Tax Refund

You become eligible for the income tax refund if you meet any of the following criteria:

a) Your total advance tax payments are more than 100% of your actual tax liabilities for the financial year
b) Your TDS payments in the financial year exceed your final tax liability after regular assessment
c) If you have made last moment tax-saving investments
d) You have paid tax on your income in a foreign country that has double taxation avoidance agreement (DTAA) with India
e) You have paid excess tax under regular assessment due to an error in assessment

How to Claim Income Tax Refund?

The simplest way to claim your income tax refund is by filing a correct income tax return before the due date. While filing your return you can check the total advance tax payments under Form 26AS.

After you have filed your income tax return the assessment officer must be satisfied with the income tax calculation of the form. If your balance of advance tax payment under Form 26AS is more than your tax liability under the filed ITR, the officer may approve your tax refund.

Otherwise, you can also file Form 30 to request a review of your income tax payments against your liability. You can receive your income tax refunds faster if you provide your bank account details for direct transfer.

You can check the income tax refund status on your e-filing dashboard after filing and verifying the ITR.

Due Date to Claim Income Tax Refund

You can claim an income tax refund within 12 months after the end of the relevant assessment year. However, the following conditions will also apply to the tax refund claims:

a) You can claim a tax refund on the income tax paid within six successive assessment years. CBDT will not accept tax refund claims older than this period.
b) CBDT does not pay any interest on the tax refunds
c) The officers may accept delayed tax refund claims if it requires verification
d) The total claim amount for one assessment year should not be more than Rs 50 lakh

Income Tax Refund in Special Cases

In case a person is unable to claim an income tax refund due to insolvency, death, liquidation, incapacity, or any other cause, their legal representative, guardian, receiver, or trustee can file for an income tax refund on their behalf, under Section 238 of the Income Tax Act, 1961.

Interest Earned on Income Tax Refund

The Income Tax Department mandatorily pays an interest if the refund amount is equal to or above 10% of the total tax paid under Section 244A of the Income Tax Act. Accordingly, simple interest of 0.5% per month is levied on the amount of tax refund and paid to you.

How can you Check Income Tax Refund Status through E-Filing Website?

You can file and track your ITR and income tax refund status at eportal.incometax.gov.in. If you do not have an account create your account on the website using your PAN and Aadhaar numbers. Log in to this portal and check your latest ITR status.

If your last ITR is not visible on the dashboard you can go to e-File on the menu, then Income Tax Returns and select ‘View Filed Returns’. This will show you all your historical ITRs and their status. If you have been filing returns in the offline mode, you will need to navigate through ‘View Filed Forms’.

If your last ITR has been processed and a tax refund has been issued you can check the status of the same here.

How can you Check Income Tax Refund Status through TIN NSDL Website?

You can also check the status of the issued income tax refund through the TIN NSDL portal. Visit https://tin.tin.nsdl.com/oltas/refund-status-pan.html and enter your PAN and select the assessment year you want to check tax refund status for.

The portal will show you one of the following status messages:

a) Not determined if the assessing officer is yet to accept the refund
b) Refund Paid or Credited to Bank if the refund has been processed and paid
c) ITR Proceeds determined and sent to Refund Banker if the refund amount is yet to be transferred (cheque drawn)

FAQ

Income tax in India is based on incremental slab rates. The rate of tax is higher on higher income. You can also avail deductions from your taxable income if you invest in eligible instruments like PPF, NPS, ELSS, ULIPs, etc. Starting AY 2020-21 you have two tax regimes – old and new. The old tax regime has all the deductions from gross total income, while the new tax regime offers a lower rate of tax. So, if you are not investing in tax-saving instruments you can file your tax as per the new tax regime.

You can avail additional tax savings under the following sections other than section 80C:

a) Section 80D: Health insurance premium payments for family and parents up to Rs 75,000
b) Section 80CCD(1B): Self-contribution to NPS Tier-I account above 10% of salary or 20% of income if self-employed up to Rs 50,000
c) Section 80E: Education loan interest paid through the year
d) Section 80EE: Home loan interest paid up to Rs 50,000
e) Section 80G: Charitable contributions to non-profit organisations registered under section 12A up to 50% or 100% of the contribution
f) Section 24B: Interest paid on home loan

You have many tax-saving investment options. You can consider the following popular tax-saving schemes to save tax:

a) Term life insurance plan
b) Health and critical illness insurance plan
c) Life insurance plans such as endowment and moneyback plans
d) Pension plans from life insurance companies
e) Public Provident Fund (PPF)
f) National Pension System Tier-I account (NPS)
g) Employee Provident Fund (EPF)
h) Unit Linked Insurance Plans (ULIPs)
i) Equity Linked Savings Scheme (ELSS)
j) Senior Citizen Savings Scheme
k) Sukanya Samriddhi Yojana
l) 5-Year Tax Saving Fixed Deposits
m) National Savings Certificate (NSC)

Deduction of Rs 1.5 or 2 Lakhs under section 80C is available when you make investments or spend money under the heads mentioned in the Chapter VI A of the Income Tax Act, 1961. All tax-saving investments like PPF, NPS, ULIP, ELSS, etc. and all tax-saving expenses like children’s tuition fees, and registration expenses of a house property are part of Chapter VI A.

You will need to pay taxes on the incomes and gains from your investments. For example, your salary income is Rs 10 lakhs in a year, out of which Rs 7.5 lakhs becomes taxable after deducting exempt perquisites. Out of your income of Rs 10 lakhs, you invest Rs 3 lakhs in various options.

Even if none of your investments is eligible for tax saving under section 80C, your taxable income will remain Rs 7.5 lakhs. However, returns from some of these investments will become taxable in the next financial year when you receive them.

Since AY 2020-21 you have two ways to lower your income tax outflow on higher income – tax-saving investments and a new tax regime. You can stick to the old tax regime and invest your savings into eligible tax saving options. Tax-saving investments can give you a deduction of up to Rs 2 lakhs under sections 80C and 80CCD(1B), and additional deductions of up to Rs 2 lakhs under section 24.

Your deductions will be higher with other sections like 80E and 80G. But these are specific outflows which are not investments.

The best way to reduce your tax outflow legally is to use tax-saving investments and plan your future taxes carefully. Tax-saving investments will help you reduce your taxable income in the present financial year. If you invest in options which enjoy tax exemptions on maturity values, you can also reduce your future tax outflow. For example, Invest 4G ULIP from Canara HSBC Life Insurance allows you to stay invested up to the age of 99. This means that you can start investing at 30, build a corpus by 60 and have a tax-free lifetime pension.

Usually, a receipt is a convenient document to produce while claiming your deductions for expenses. However, the following alternatives are available if you lose the receipt:

a) Avail fuel or petrol expenses with number of kilometres
b) Credit card statement for computer items
c) Credit/debit card statement for stationery items
d) Membership documents to show running membership to claim the fees amount

You can claim HRA exemption with your employer and declare the amount in your ITR-1 form while filing your tax return. You will need to submit your house rent receipts with your employer to reduce your TDS. Use the online calculator to estimate your HRA exemption and claim the amount directly in your ITR.

If you are self-employed or do not receive HRA from your employer but have been paying rent for residence, you can claim a deduction of up to Rs 60,000 under section 80GG.

You can calculate your HRA exemption based on the following conditions. The amount of exempt HRA will be the lowest of the three:

a) HRA you have received
b) 50% of salary (basic + DA + Commission paid as % of turnover) if you are staying in a metro city otherwise 40%
c) Rent paid over 10% of your salary (as defined in step 2)

What is EPF Form 10C?

Tax Liability

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