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A Guide on Tax Refund

Explains various provisions, scenarios of Tax Refund!

​Many times it may happen that the taxpayer has paid excess tax as against the tax required to be paid by him. In such a case he is granted refund of the excess tax paid by him. In this part you can gain knowledge about various provisions relating to claim of refund of excess tax paid by the taxpayer.

Basic provisions:

When the tax paid by the taxpayer (could be in the form of advance tax or tax deducted/collected at source or self-assessment tax or payment of tax on regular assessment) is more than the required amount, he will be eligible to claim refund of the excess tax paid by him. Sections 237 to 245 deal with the provisions relating to refund of tax.

When does the refund arise?

As per section 237, if any person satisfies the Assessing Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any year exceeds the amount of tax payable by him, he shall be entitled to a refund of the excess tax paid by him.

Person entitled to claim refund:

In the normal course, the person who has paid the tax is entitled to claim the refund of excess tax paid by him. There are certain special cases in which the refund is to be claimed by a person other than the payer. The provisions relating to person entitled to claim refund in certain special cases are given in section 238. As per section 238, following persons are entitled to claim refund of tax:

  1. Where the income of one person is included in the total income of another person under any provision of the Act (i.e., as per the clubbing provisions, e.g., income of minor child clubbed with the income of parent), the latter shall be entitled to a refund in respect of the clubbed income.

  2. Where through death, incapacity, insolvency, liquidation or other cause, a person is unable to claim or receive any refund due to him, his legal representative or the trustee or guardian or receiver (as the case may be), shall be entitled to claim or receive such refund for the benefit of such person or his estate.

Refund on appeal:

As per section 240, in a case where the refund becomes due as a result of any order passed in appeal or other proceeding under the Act, the Assessing Officer shall, except as otherwise provided in the Act, refund the amount to the taxpayer without his having to make any claim in that behalf.

Interest on delayed refund

Many times the taxpayer does not get the refund in due time, in such a case he is granted interest on delayed refund. The provisions in this regard are given in section 244A. The provisions in this regard are as follows:

  1. Where the refund arising to the taxpayer is out of any tax deducted/collected at source or tax paid by way of advance tax, then the taxpayer shall be entitled to interest calculated at the rate of one-half percent for every month or part of a month. Interest in such a case shall be allowed for a period commencing from the 1st day of April of the assessment year to the date on which the refund is granted.

    However, no interest shall be payable if the amount of refund is less than 10% of the tax as determined under section 143(1) or tax determined under regular assessment.

  2. In any other case (i.e., a case in which refund is due to reasons other than those stated above), interest shall be calculated at the rate of one-half percent for every month or part of a month.

  3. Interest in such a case shall be allowed for a period commencing from the date/dates (as the case may be) of payment of the tax or penalty to the date on which the refund is granted.

  4. The expression "date of payment of tax or penalty" means the date on and from which the amount of tax or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand.

No interest in certain cases:

The taxpayer will not be entitled to any interest on refund, if the proceedings resulting in the refund are delayed for the reasons attributable to the taxpayer (whether wholly or in part). In such a case, the period of the delay so attributable to him shall be excluded from the period for which interest is payable.

Where any question arises as to the period to be excluded, it shall be decided by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner whose decision thereon shall be final.

Power of tax authorities to set-off the refund:

At times, it may happen that, refund may be due to the taxpayer for some assessment year(s) and there may be some tax demand remaining payable by the taxpayer. In such a case, section 245 empowers the tax authorities to set-off the refund due to the taxpayer against the amount due from him.

As per section 245, where a refund is found to be due to any person, the tax authorities authorised in this regard, may, in lieu of payment of the refund to the taxpayer, set off the amount to be refunded or any part of that amount against the sum, if any, remaining payable by the person to whom the refund is due. However, such an action can be done only after giving an intimation in writing to such person of the action proposed to be taken.