The different formats for paying income tax in India include advance tax, self assessment tax, tax deducted at source (TDS), foreign tax credit, and so on. But when the financial year ends, you may realize that you have paid more tax than your actual tax liability. If that happens, you can apply for a tax refund.
What is income tax refund?
You can calculate your income tax liability using an online income tax calculator. However, sometimes more tax might get deducted at source from your salary or your other incomes. Or you may miscalculate and pay higher advance tax than necessary.
When you pay more income tax than the amount you need to pay, the Income Tax Department refunds the excess. This returned amount is known as income tax refund.
For example, using a calculator you find out that you owe ₹ 75,000 in taxes one financial year. But you failed to declare the details of your tax-saving investments to your employer on time. As a result, your company deducted taxes from your earnings as TDS. Therefore, you ended up paying ₹1 lakh as taxes.
Then, as per Section 237 of Income Tax Act, 1961, you can claim an income tax refund of ₹ (1,00,000 – 75,000) = ₹ 25,000.
The refund you receive is not considered as an income and you need not pay any tax on it.
Eligibility to qualify for tax refund
Situations that can make you eligible for tax refunds include:
- Excess Tax Deducted (TDS) on your salary
- More tax (TDS) deducted than the amount you owe on the interests of your bank deposits, securities, or debentures
- Advance tax you paid on self assessment exceeds the amount payable after deductions and exemptions
- Double taxation - your earnings in a foreign country taxed in the country where you have the income as well as in India
- You are yet to declare tax-saving investments you possess
You must file your Income Tax Return (ITR)
To qualify for tax refund, you must file your ITR. Submitting your ITR form is the only way to claim your refund. You must remember to provide adequate proofs in support of the instruments you are using to get tax benefits. Such tax-saving tools can include house-rent allowance, life insurance premiums, health insurance, mutual fund investments, home loans, and more.
You must also ensure your return is verified within 120 days of filing your return. You can verify your ITR electronically through Aadhaar Number OTP or EVC generated through your bank account. Or else, you can also get your ITR physically verified. For this, you have to send your signed ITR-V to the Central Processing Centre via post.
The tax department will then process your ITR and pay your refund.
Check your Form 26AS
The tax you paid in excess must reflect in your Form 26AS, the annual tax statement. Otherwise, the tax department may reject your claim for refund.
You should not have any unpaid dues
You may have some outstanding income tax from a previous financial year. Then, the income tax department may adjust your dues against your refund. In that case, you may no longer qualify for a reimbursement.
How to check for income tax refund status?
To enable taxpayers to check their income tax refund status, Indian government provides two channels.
A) Tracking your refund status through the income tax e-filing website
- Visit https://www.incometaxindia.gov.in
- Login with your username, password, and the captcha code
- Go to the section labeled "My Account"
- Select "View Returns/ Forms"
- Choose the option "Income Tax Returns" from the drop-down menu
- Click on the hyperlink showing your acknowledgement number
You will be able to view your income tax refund status along with the reasons for refund failure, if any.
B) Confirming your income tax refund status on the TIN NSDL website
- Go to the website https://tin.tin.nsdl.com/oltas/refundstatuslogin.html
- Enter your PAN
- Select the relevant assessment year for which you want to check for income tax refund status
- Input the captcha code
- Click on "Proceed"
You will see a message based on your refund status.