If you have not received interest on your tax refund, most probably, there may be a reason behind it. Interest on refund can only be paid given the fact the amount of refund is more than 10 percent of the actual tax liability. It is necessary to clear the doubts about the issue. Exchequer of the government along with time and resources is precious. So as responsible citizen, we should be well-conversant with the basics of Income Tax Refund so that we can save our hardships along with saving precious time and efforts of the Income Tax Department.

Here is your guide to tax refunds and reasons for not receiving interest on it. We shall start from scratch to understand the entire mechanism of income tax refunds. Let’s dwell on details.

To begin with, whenever the tax liability of an assessee for a particular financial year is less than the actual tax paid by him by way of

• Advance tax or self-assessment tax

• The tax collected at source (TCS)

• The tax deducted at source (TDS)

• Foreign tax credit

• And so on

Then the assessee is liable for tax refunds. In other words, an individual is entitled to a tax refund when the actual tax paid is higher than the tax liability.

There is no distinct procedure specified in Income Tax Act 1961 for claiming an income tax refund. You can simply provide written proof (about Income and deduction) to the Income Tax Department by filing the income tax return in the usual manner. However, make sure that the return is authenticated through

• Electronic verification code generated through bank account

• Aadhar Number OTP

• By manually posting the signed ITR-V (acknowledgment) to the Central Processing Centre within 120 days of filing the ITR.

Then the assessee is eligible for tax refunds and the Income Tax Department takes steps to return the income tax refund.

However, in specific facts and circumstances, along with the refund, I-T Department further pays interest to eligible taxpayers. The terms and conditions of payment of interest are as follows:

• If the refund has not been paid by the due date by the Income Tax Department, then interest shall be calculated from the date of furnishing ITR to the date on which the refund is granted

• However, interest on refund shall only be paid when the amount of refund is more than 10 per cent of the actual tax liability that is calculated in the regular assessment or summary assessment.

• The interest on tax refund shall be calculated at the rate of 0.5 per cent for every month or part of the month starting from the first month (April) of the assessment year.

We can understand the aforesaid mechanism of payment of interest on income tax refund with the help of an exemplar:

For instance, a taxpayer has already paid an income tax of Rs 12.80 lakh as a tax deducted at source. However, in the summary assessment consequent to filing ITR, the true/actual tax liability of the taxpayer comes at Rs 11. 92 lakh then the taxpayer shall receive a refund of Rs 88,000; however, without any interest. The reason being the due refund amount is less than 10% of the liable tax of Rs 11.92 lakh.

However, if the refund amount is greater than 10 per cent of the actual/true tax for which assessee is liable then interest at 0.5 per cent for each month that shall be starting from April 1 of the assessment year to the date on which the refund is permitted is paid given the fact that ITR is filed within the due date.

For instance, a taxpayer has already paid an income tax of Rs 12.80 lakhs as a Tax Deducted at the source. However, in the summary assessment consequent to filing ITR, the true/actual tax liability of the taxpayer comes at Rs 10 lakh then the taxpayer shall receive a refund of Rs 2,80,000 along with interest at 0.5 per cent.

So, the takeaway from the discussion is that we must cross-check the facts and figures before approaching the Income Tax Department to save our and the department's resources.

The author is Managing Director, SAG Infotech

DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.