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Income Tax Refund - Know How to Claim & Check IT Refund Status Online

Team AckoMar 6, 2023

When you pay income tax, you enable the government to keep the economy running. Regarding this payment, there’s a provision called Income Tax Refund (ITR) to claim a refund based on how much extra tax was deducted from your income annually. Learn all you need to know about Income Tax Returns in the following article.

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What is an Income Tax Refund?

Income Tax Refund If you've paid more tax to the Indian government than your total taxable income for the year, you can file an income tax return and get a refund. You need to file a tax refund claim with the authorities, and if you're eligible, they will refund the excess money. This is called an Income Tax Refund.

How is an Income Tax Refund calculated?

A tax refund is calculated based on how much you paid and how much income you received during the fiscal year. The following steps are often involved in the process.

1. Calculating taxable income

To start, you need to calculate how much income you have that's subject to tax for the year. That means adding up all your income and then subtracting any exemptions or deductions you're eligible for.

2. Estimating tax liability

Your taxable income is then taxed depending on what tax bracket you fall into, based on your age and income. 

3. Comparison of taxes paid and tax due

The entire amount of tax paid for the year, which includes TDS (Tax Deducted at Source) and self-assessment tax, is then compared with the tax liability estimated in step 2 of the process.

  1. Calculation of refunds

If you've paid more in taxes than you owe, the extra amount you paid is refundable; that's the amount of your Income Tax Refund.

When should you expect to receive your tax refund?

You could receive the Income Tax Refund depending on a bunch of things like how many returns the tax department gets, how complete your return is, and whether the information you submitted is correct. However, the general steps in the refund process are as follows.

Steps

Description

Income Tax Return Filing

Income Tax Return

ITR processing

The tax department processes the return and verifies the information provided once the ITR is filed.

Refund authorisation

The tax department will authorise the refund if the information supplied in the return is correct and full.

Refund issuance

Once the refund is approved, the tax department will either pay the money into your bank account electronically or send you a cheque.

Typically it'll take somewhere between two and three weeks for your refund to be processed. You can check on the status of your refund by using the Income Tax Department's website or the Tax Information Network (TIN) with your PAN number. Some ITRs have been processed  with super speed—24 hours.

How to claim your Income Tax Refund

The following steps will help you to claim an Income Tax Refund.

  • Step 1: File an Income Tax Return

To get your refund, you need to file your Income Tax Return by the due date, which is usually July 31st of each financial year. You can do this either by sending in a paper return or by filing electronically using the Income tax e-filing portal of the Income Tax Department.

  • Step 2: Mention Refund Claim

It is critical to include the reimbursement claim in the relevant part of the ITR. In the ITR form, you must also include the amount of the return.

  • Step 3: Submit Supporting Documents

You'll need to submit things like Form 16, bank statements, TDS certificates, etc., while filing your ITR.

  • Step 4: Verify the ITR

Once you've filed your ITR, you've got 120 days to get it verified. You can do this through electronic verification, physical verification, or using the Aadhaar OTP.

  • Step 5: Processing of Refund

Once the ITR is approved, the tax authority will handle the return and release the refund amount if all the details are accurate and complete.

  • Step 6: Receiving Refund

The refund will be sent through an Electronic Clearing Service (ECS) to your bank account, or you'll get a cheque via post.

What are the eligibility criteria for requesting a tax refund?

Meeting the following criteria makes you eligible to request an Income Tax Refund.

  1. You must submit an Income Tax Return (ITR) by the deadline, typically July 31 of the fiscal year.

  2. You must have paid more tax than your actual tax obligation based on your taxable income.

  3. You must include TDS (Tax Deducted at Source) and self-assessment tax in the excess tax paid.

  4. The ITR must contain accurate and comprehensive information, and you must present any necessary supporting documentation.

  5. 120 days after filing, the ITR must be confirmed.

Tips for maximising your Income Tax Refund

Here are some tips for maximising your Income Tax Refund in India.

  1. Keep records of all income and expenses.

  2. Avail of applicable tax-saving investments.

  3. Claim all eligible deductions.

  4. Claim TDS credit.

  5. Review tax calculations.

  6. File on time.

  7. If required, seek professional help.

Documents required for filing your tax return

You may require the following documents for filing an Income Tax Return (ITR) in India.

  1. PAN (Permanent Account Number) 

  2. Bank account details

  3. Form 16

  4. Salary slips

  5. Investment proofs

  6. TDS certificates

  7. Interest certificates

  8. House property details

  9. Medical bills

  10. Business or profession details

Note: This is an indicative list and you may need other details to process your ITR.

How to choose the right income tax form

The type of income, tax status, and tax liability of an individual in India determine the appropriate Income Tax Return (ITR) form to use. Here are the most frequently used ITR forms.

ITR form number

Description

ITR-1 (SAHAJ)

For individuals with a salary or pension income or income from one house property (excluding rented property).

ITR-2

This form is for individuals and Hindu Undivided Families (HUFs) who do not have any income from business or profession.

ITR-3

This form is for individuals and HUFs with income from a proprietary business or profession.

ITR-4 (SUGAM)

This form is for individuals, HUFs, and firms (other than limited liability partnerships) who have opted for the presumptive taxation scheme under Sections 44AD, 44AE, or 44ADA.

ITR-5

This form is for firms, LLPs, AOPs (Association of Persons), BOIs (Body of Individuals), and artificial juridical persons.

ITR-6

This form is for companies other than companies claiming exemption under section 11.

ITR-7

This form is for individuals, HUFs, firms, and companies who are required to furnish returns under sections 139(4A), 139(4B), 139(4C), 139(4D), or 139(4E).

How to check the status of your refund online

Here are the steps to check the ITR status online.

  1. Visit the official website of the Income Tax Department.

  2. Login to your account using your PAN number and password.

  3. Click the "View Returns/Forms" option and select the relevant Assessment Year.

  4. Click on the "Track Refund Status" link to view the current status of your refund.

  5. The refund status will be displayed on the screen, including details such as the processing stage, expected date of credit, and other relevant information.

Common reasons for delays in receiving your refund

There can be several reasons for a delay in receiving an Income Tax Refund in India, some of the most common ones are listed below.

  1. Incorrect bank details

  2. Processing errors

  3. Pending verification

  4. Refund re-issuance

  5. Technical glitches

  6. Refund under TDS

  7. Refund under TCS

What to do if you think there is an error in your refund?

Here are the steps you can follow if you think there is an error in your refund.

  1. Check your tax return

  2. Contact the tax department

  3. Raise a request for rectification

  4. Submit relevant documents

  5. Seek assistance from a tax professional

What to do with your ITR refund?

Here are some options you can consider when you receive the ITR refund.

  1. Save or invest

  2. Pay off debts

  3. Spend on essential items

  4. Travel 

  5. Give to charity

Ultimately, the best use of your refund depends on your individual financial situation and priorities. 

Options for getting a refund of income taxes

The following three alternatives are available for your Income Tax Refund.

1. Bank account direct deposit

The most typical and practical choice is to have the refund deposited immediately into your bank account. When filing your tax return, you must provide appropriate bank information if you want to receive your refund in this manner.

2. Cheque

You can also opt to have a check delivered to the address listed on your tax return if you like.

3. Demand draft

You can take money out of a bank using a demand draft, a kind of cheque. You can choose this option if you don't have a bank account or would instead get your money in cash.

Ideas for saving or investing your Income Tax Refund

Your Income Tax Refund in India can be saved or invested in a number of ways. Here are a few ideas.

Investment type

Description

Savings account

You can add your refund to a savings account and get interest on your money. It's a safe option, and you'll have access to the money whenever you want.

Fixed deposits

A longer lock-in time is a trade-off for fixed deposits' higher interest rates, a form of savings account. This option can be a decent alternative if you are searching for a reasonably risk-free investment with a guaranteed return.

Mutual funds

A type of investment known as mutual funds, pools the money from numerous investors to buy a diverse portfolio of securities. Although the risk is higher, this option may offer higher returns than savings accounts.

Stock market 

By purchasing individual equities, you can invest directly in the stock market or indirectly through equity mutual funds. Although it has a higher risk than other investment options, this choice may yield higher profits.

Public Provident Fund (PPF)

The Indian government provides PPF as a long-term investment option. It offers a guaranteed return and qualifies for tax advantages.

Tips on how to spend your income tax return responsibly

Here are some suggestions for preventing wasteful spending of your Income Tax Refund.

  1. Make a budget and stick to it

  2. Set aside for emergencies

  3. Pay off debts

  4. Invest in long-term savings

  5. Avoid impulsive purchases

Advantages and disadvantages of using your Income Tax Refund to clear debts

The following table lists the advantages and disadvantages of using your Income Tax Refund to clear debts.

Advantages

Disadvantages

Paying off debt can lower what you owe and the interest you have to pay over time. That way, you can save more money in the end.

You might not have as much money left over for savings or other financial objectives if you use your refund to pay off debt.

Paying off debt can improve your credit score, which can be beneficial if you plan on applying for a loan or a credit card.

You can lose out on possible investment opportunities, like a stock market investment or a real estate investment, that could have offered higher returns, if you use your refund to pay off debt.

By reducing your debt, you can increase your overall financial stability and reduce the stress associated with debt repayment.

If you pay off debt with your refund, you might feel immediate relief, but if you don't deal with the root reasons of the debt, you might find yourself in trouble once more in the future.

The choice of using your tax refund to reduce debt ultimately depends on your unique financial status, amount of debt, and financial objectives.

How to file an amended tax return

You may need to file an amended return if you made a mistake on your original return, for example incorrect income or deductions. Here is the process of filing an amended tax return.

  1. Review your original return to make sure you have all the required information and documents before you begin filing your amended return.

  2. Use the Form ITR-V to file an amended tax return.

  3. Make the necessary changes to correct any errors.

  4. Proceed to file your amended return with the Income Tax Department, you can do so online through the e-filing portal.

  5. After you file your amended return, the Income Tax Department will process it and issue a response.

Impact of an amended tax return on your refund

Depending on the modifications you made to your first return, filing an amended tax return may affect your refund. Usually, you can amend the filed return if you made a mistake on your original return that resulted in understating your income or overstating your deductions. Submitting an amended return may reduce the amount of your refund or increase the amount you owe.

The updated return, however, will raise your refund if the adjustments you made to your initial return result in a bigger refund. If you made a mistake on your initial tax return, you must file an amended tax return immediately to avoid accruing any fines or interest fees.

Frequently asked questions

Here are some common questions and answers about Income Tax Refund.

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If I overpaid my taxes for the year, am I eligible for a tax refund?

You might be entitled to a tax refund if you overpaid your taxes for the year. Your refund amount will vary according to your tax due and the amount of overpaid taxes.

What should I do if the Income Tax Department sends me a notice?

If the Income Tax Department sends you a notice, you should carefully read it and follow its instructions. If you require assistance, you might want to speak with a tax expert or financial advisor.

What happens if my tax return isn't submitted by the due date?

The Income Tax Department may take disciplinary action against you and impose penalties and interest fees if your tax return isn't submitted by the due date.

Am I still eligible for a refund if I don't have any taxable income?

Yes, even if you don't have any taxable income, you can be eligible for a refund if taxes are deducted from your salaries or if you make promissory tax payments.

Can I still file a tax return if I live outside of India?

Yes, regardless of where you live, if you are an Indian citizen, you must file a tax return.

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