At the end of the financial year we are all dogged with thoughts about declaration of investments and keeping aside as much money as possible for tax deduction, and never flip our thoughts to the possibility of a tax refund. A tax rebate or tax refund is not something that everyone receives. However, it is definitely something worth knowing about.
An individual gets a tax refund when the tax liability or the amount of tax to be paid is lesser than the actual taxes paid. Does the possibility perplex you? Take a look at a few scenarios that will clear the confusion.
- Tax paid in advance on the basis of self-assessment is more and revealed when a regular assessment is done.
Sandesh is a small businessman who pays an average tax of 28,000 every year. He would like to cost and spend after setting aside or making payments for all liabilities. He made an advance tax payment of INR 28000/- this year too. However, when he filed his returns at the end of the year he found that depreciation on a new generator he bought for his business was a deduction apart from other business expenses he incurred on business travel and accommodation. His tax liability worked out to an amount of INR 21033/- . Sandesh is eligible for a tax refund of INR 6967/-
- When the TDS (Tax Deducted at Source) from salary, interest on debentures, and dividends is higher than the actual tax payable.
Aradhana’s company deducts tax from her salary on a quarterly or half-yearly basis. She receives a variable component or performance incentive every quarter. The incentive is credited after a TDS deduction. By the end of the year Aradhana had paid a total tax of INR 67555/- .
She declared her investments, insurance premiums, medical bills which are eligible for an exemption and deduction and her tax liability now stood at a credit of INR 7934/-. This would reflect on her form 16 as a negative balance (-7934/-)
- When there is an error in the calculation of regular tax.
- When the individual is also taxed for the same income in a foreign country with which the government of India has an understanding to avoid double tax.
India has an agreement with 88 countries under the Double Taxation Avoidance Agreement (DTAA). Under this agreement an individual can avoid double taxation if the same assets have been declared in both countries. If the individual has been staying in a country other than India for a period of more than 181 days he becomes a Non- Resident Indian. He loses the right to handle any type of domestic savings account in India. In order to avoid a 30.9 percent as tax in his income, he must convert his savings account into an NRO account through which he can make domestic payments and become eligible for a TDS of 10% only as against a 30.9 %, if he stays in any of the countries listed under the DTAA.
How is an Income Tax Refund Claimed?
The best way to file for an Income Tax Refund is to declare investments under Form 16 which lists the various deductions like the Life Insurance and Health Insurance Premiums, house rent paid and equity investments that are eligible under sec 80C. And then submit the proof along with the declaration to avail the deductions. In the event of non-submission of proof or non-declaration of these investments or expenses, and if you think you have been paying extra taxes, fill out a Form 30 and file it.
You receive a tax refund if you are eligible for one and if you have submitted all the necessary papers. The usual time period for the receipt of the refund is a year from the date of filing your return or request for refund. In the event of non-receipt you can also write a letter to the assessing officer. The Income Tax Department allows you to track your tax refund process and you can receive the refund by way of cheque or as a direct credit to your account. If your refund is delayed you also earn a 0.5% interest on it. Speak to a tax consultant today to understand more about Tax Refunds. There is every chance you can be paying more tax.
This article has been contributed by Right Horizons