Taxation of payment

Introduction

The Income tax Act prescribes the method to compute the taxable income of a person and on such taxable income, such person needs to pay tax at the prescribed rates. Such tax rates are prescribed in the Finance Act of every year. While filing the return of income (ITR), the taxpayer needs to provide the details of taxes paid like TDS, TCS, Advance tax, Self-Assessment tax and such other taxes if any paid by the taxpayer. These are the different modes of collection and recovery of taxes.

Advance tax

The ITR in respect of the income earned in a particular financial year (1st April-31st March) is required to be filed in next financial year which is known as Assessment Year. Now, in case where the tax is to be paid only at the time of filing ITR, then the tax paid in an assessment year is belonging to the tax in respect of income earned in a preceding year. However, the Income tax Act prescribes a scheme where the tax is to be paid as you earn income. This scheme is called as Pay As You Earn (PAYE). The advance tax is collected as per this scheme. The tax is required to pay in the year in which you earn income. The advance tax is paid in a quarterly manner, in four quarters, June, September, December and March.

Who is required to pay advance tax?

Any person being individual, HUF, partnership firm, company, LLP, Trust or society who is having tax liability of more than Rs.10,000/- on income in a year is required to pay advance tax in that year.
However, a senior citizen of age 60 years or more who doesn’t have income from business and profession need not pay advance tax.

When should the advance tax be paid?

The advance tax is paid in each quarter of the financial year. Such advance tax is to be computed and paid at the rates prevalent in that year. The section 211 of the Income tax Act, 1961 specifies the dates of payment of advance tax. In respect of all classes of taxpayers, the dates are as below.

When should the advance tax be paid?

The advance tax is paid in each quarter of the financial year. Such advance tax is to be computed and paid at the rates prevalent in that year. The section 211 of the Income tax Act, 1961 specifies the dates of payment of advance tax. In respect of all classes of taxpayers, the dates are as below.

Due date of instalment in F Y Amount payable
On or before the 15th June Fifteen per cent or more of such total advance tax for the year.
On or before the 15th September Forty-five per cent or more of such advance tax minus advance tax paid in earlier instalment
On or before the 15th December Seventy-five per cent or more of such advance tax minus advance tax paid in earlier installments.
On or before the 15th March The whole amount of such advance tax minus advance tax paid in earlier installments.

However, in case of business taxpayers who pay tax as per section 44AD or professionals who opt for section 44ADA of the Income tax Act (Presumptive Taxation Scheme), the entire advance tax is payable only on 15th of March of that year.

How to compute advance tax?

Ideally, the advance tax is to be computed after making a realistic estimate of income and tax thereon for the current year. However, for small businessmen and professionals this sounds difficult since they may not maintain regular books of account. Therefore, in such cases, the due date is given as 15th March of the financial year and not earlier installments. In such cases, it is easy to estimate the taxable income for a year and compute the advance tax on the same.
In cases, where there is an audit and case is not covered under presumptive taxation scheme (PTS) the taxpayer may follow following steps:

Sr. No. Action Example
01 Compute the net revenue/sales earned for the quarter (add up the bills and receipts issued by you) 60,00,000/-
02 (-) Direct expenses incurred to earn this income (add up the bills and invoices paid by you) 30,00,000/-
03 (-) Direct fixed expenses incurred to earn this income (those remaining to be paid like rent, salary etc.) 500,000/-
04 (-) Indirect expenses whether paid or not (like interest, EMI etc.) 200,000/-
05 (-) Business loss if any adjusted against the business profits 300,000/-
06 Net profit for the quarter (taxable income) 20,00,000/-
07 Deduction to be claimed out of business profits () 500,000/-
08 Taxable Business income 15,00,000/-
09 Amount of tax, cess and surcharge on (07) 4,30,000/-
010 (-) TDS/TCS deducted by the deductor in respect of receipts 200,000/-
011 Advance tax amount 230,000/-

If you don’t pay advance tax at all or delay the advance tax instalments or don’t pay the advance tax as per the installments, then you will be charged an interest under section 234B and 234C of the Income tax Act. The interest charging sections in a nutshell are as below:

Charging section Default Rate of interest Period of charging
234B Non-payment of advance tax or
Advance tax paid is less than 90% of liability
1% of simple interest Interest is charged from the first day of the assessment year to the determination of the amount of interest on regular assessed income either u/s 143(1), 143(3) or 147 or any other section under which assessed income is finalized.See below
234C Deferment of different installments of advance tax 1% of simple interest Interest under section 234C is levied for a period of 3 months, in case of short fall in payment of 1st, 2nd and 3rd instalment and for 1 month, in case of short fall in payment of last instalment.See below

Interest for non-payment or short payment of advance tax (‘234B interest’)

The default

In case, when you were required to pay advance tax, but you have not paid advance tax or paid the advance tax, but you have paid advance tax amount which is below 90% of your liability, then the interest under this section is charged on the unpaid amount of the advance tax.

Illustration

  1. 1. Shri Sandip is having income from business and profession and tax liability on his income in F Y 2018-19 is Rs. 500,000/-. He was required to pay advance tax of the amount more than 90% of this tax liability i.e. Rs.450,000/- before 15th March 2019 or 31st March 2019. However, he didn’t pay any amount of advance tax but chose to pay self-assessment tax before filing his ITR.
    In this case, Shri Sandip will be charged 234B interest on entire amount of Rs. 500,000/-.
  2. 2. Shri Bhushan is having income from business and profession and his tax liability on such income is Rs. 600,000/-. However, his TDS of Rs.200,000/- was deducted. He paid 100,000/- of advance tax. And rest of the amount of Rs.300,000/- was paid as self-assessment tax.
    In this case, Shri Bhushan’s advance tax liability was Rs.400,000/- and to avoid 234B interest, he should have paid Rs. 360,000/- as advance tax (90% of his tax liability). However, he paid only Rs.100,000/- as advance tax, against liability of Rs.400,000/- which is 25% of the advance tax liability. Therefore, Shri Bhushan shall be liable for 234B interest against unpaid tax liability of Rs.300,000/-.

The rate of interest

The rate of interest charged under section 234B is at 1% per month of default on the unpaid amount of advance tax liability.

Period of charging interest

Since interest is charged at the rate of 1% per month of default for the period of default in advance tax payment, it is important to know the period of default. The period of default is counted from the beginning of assessment year i.e 1st April to the date of determination of assessed income. The assessed income means the taxable income computed or determined by the Income tax Department. The dates of computing assessed income under different proceedings are as under:
Further, if you have paid any self-assessment tax or a regular demand then firstly, 234B interest will be charged on entire unpaid advance tax till such payment of advance tax and then secondly, interest shall be computed from the date of payment of self-assessment tax till date of assessed income and for this computation, the amount of self-assessment tax so paid shall be deducted.

Sr. No. Proceedings Date till when interest is charged
01 Processing u/s 143(1) Date of intimation letter
02 Scrutiny assessment u/s 143(3) Date of assessment order u/s 143(3)
03 Re-assessment proceedings u/s 147 Date of assessment order u/s 147

In case the period involves a part of the month, then that period is counted as full month. For example, if the period of computation of interest is 5 months and six days, then the period should be computed as SIX months. The period of SIX days after 5 months is counted as one full month.

Illustrations

  1. Case of Shri Sandip – The due date of filing of his ITR is 31st July but he filed ITR on 5th August. In this case, first interest u/s 234A will be computed at the rate of 1% for one month and the amount shall be Rs.5000/- (1% of Rs.500,000/-).
    The ITR of Shri Sandip is processed on 7th December 2019 and intimation letter of that date is issued. As per the intimation letter, the tax liability of Shri Sandip is worked out at Rs.550,000/- against Rs.500,000/- worked out by him. In this case, the 234B interest will be computed at Rs. 550,000/- for April to August (5 months) and after that from September to December (4 months) the 234B interest shall be computed at Rs.50,000/-. (550,000/- less 500,000/-).
    Thus, amount of 234B interest shall be Rs.27,500/- (5500*5) plus Rs.2000/-(500*4). Thus, total 234B interest shall be Rs. 29,500/- (27,500+2000).
  2. Case of Shri Bhushan – The due date of filing of his ITR is 31st July and he filed ITR on that date. In this case, interest u/s 234A will NOT be computed. The ITR of Shri Sandip is processed on 5th January 2020 and intimation letter of that date is issued. As per the intimation letter, the tax liability of Shri Sandip is worked out at Rs.650,000/- against Rs.600,000/- worked out by him. In this case, the 234B interest will be computed at Rs. 350,000/- for April to July (4 months) and after that from August to December (5 months) the 234B interest shall be computed at Rs.50,000/-. (550,000/- less 500,000/-).

In case, if a salaried person is having income from capital gains or income from business and profession or any other income on which TDS is not deducted, is it possible to NOT pay the advance tax and to avoid the 234B and 234C interest?
Yes. Suppose Shri Sumedh is a software professional who is employed and has income from salary. He also gives consultancy outside for which he earns professional income. In addition to that, he is having income from other sources from the investments made by him. In respect of these two incomes, his TDS is not deducted.
What Sumedh can do is, he can switch his entire tax liability to TDS instead of sharing that between TDS and advance tax. His employer must be deducting tax on his salary income. He can inform his employer that his income is more than what he gets from salary and accordingly his TDS may be deducted at a higher rate than the rate at which employer deducts his TDS normally.

The 234C interest

The default

When you are required to pay advance tax in various installments and you don’t pay those installments in time or pay the amount in each of the installments lesser than required. In such cases, the 234C interest is chargeable.
In case of taxpayers other than those who opted for Presumptive Taxation Scheme (PTS), the interest will be charged in case of following defaults:

Date of installment Instalment % (amount) Default
15th June 15% of advance tax Less than 12% of advance tax
15th September 45% Less than 36%
15th December 75% Less than 75%
15th March 100% Less than 100%

In case when you opted for PTS, then there shall be default ONLY when the advance tax paid in LAST installment (15th March) is less than 100% of the advance tax liability.
When you have income form lottery or crossword puzzle etc. and income from capital gains and you cannot estimate the amount of advance tax in each installment you have to pay your entire amount of advance tax in last installment. And the default in advance tax which is will incur advance tax liability will only occur if you have not paid your last installment.

Illustration

Shri Sachin has income from business and income from other sources. Out of the total advance tax he has paid 13% in first quarter, 34% in second quarter, 70% in third quarter and 95% in last quarter.
In this case, Shri Sachin will be charged the 234C interest in respect of advance tax installment in second, third and fourth installment only since he has met his liability in respect of first quarter.

The rate of interest

The rate of interest charged under section 234B is at 1% per month of default on the unpaid OR short paid amount of advance tax liability.

Period of levy of interest

Interest under section 234C is levied for a period of 3 months, in case of short fall in payment of 1st, 2nd and 3rd instalment AND for 1 month, in case of short fall in payment of last instalment.

Illustration

Mr. Sumit is running a materials shop. His tax liability is Rs 45,500. He has paid advance tax as given below:

 Rs. 8,000 on 15th June,

 Rs. 11,000 on 15th September,

 Rs. 12,000 on 15th December,

 Rs. 14,500 on 15th March.

He has not opted for presumptive taxation scheme (PTS). Is he liable for 234C interest and how much interest shall be charged?

Computation of interest

Date

% (required)

Amount

Paid amount

Cumulative

%paid

234C%

Charge

Amount

15th June

15

6825

8000

8000

18

>12

No

NA

15th Sep.

45

20475

11000

19000

42

>36

No

NA

15th Dec.

75

34125

12000

31000

68

<75

Yes

93

15th Mar.

100

45500

14500

45500

100

=100

No

NA

Explanation

For the first instalment, the advance tax was required to be paid at Rs.6825/-(rounded off to Rs.6800), but he has paid Rs.8,000/- which is more than the required amount. Hence, there will not be any liability to pay interest.

For the second instalment, the advance tax was required to be paid at Rs.20,475/-(rounded off to Rs.20,500), but he has paid Rs.19000/- which is less than the required amount. However, this amount (42%) is more than 36% of the amount which is a threshold % for charging interest. Hence, there will not be any liability to pay interest.

For the third instalment, the advance tax was required to be paid at Rs.34,125/-(rounded off to Rs.34,100), but he has paid Rs.31,000/- which is less than the required amount. Also, this amount (68%) is less than 75% of the amount which is a threshold % for charging interest. Hence, there will not be any liability to pay interest.

For the fourth instalment, the advance tax was required to be paid at Rs.45,500/- and he has paid entire required amount. Hence, there will not be any liability to pay interest.

How to pay advance tax on-line?

Step-1

To pay taxes online, login to http://www.tin-nsdl.com > Services > e-payment: Pay Taxes Online or click on the tab “e-pay taxes” provided on the said website.

Step-2

Select the relevant challan i.e. ITNS 280. This is for payment of Income tax and corporate tax

Step-3

Enter PAN / TAN (as applicable) and other mandatory challan details like accounting head (20 for companies and 21 for other than companies and code 100 for advance tax) under which payment is made, your address and the bank through which payment is to be made.

Step-4

On submission of data entered, a confirmation screen will be displayed. If PAN / TAN is valid as per the ITD PAN / TAN master, then the full name of the taxpayer as per the master will be displayed on the confirmation screen.

Step-5

On confirmation of the data so entered, you will be directed to the net-banking site of the bank.

Step-6

You have to login to the net-banking site with the user id / password provided by the bank for net-banking purpose and enter payment details at the bank site.

Step-7

On successful payment a challan counterfoil will be displayed containing CIN(Challan Identification Number), payment details and bank name through which e-payment has been made. This counterfoil is proof of payment being made.

 

Self-Assessment Tax

  • If you are a salaried person, it is expected that your tax liability is met out of TDS.
  • If you are a professional or having business income, you are expected to pay advance tax or some of the tax liability may be met out of TDS.
  • If you have earned income from capital gains, then it is expected that you may pay advance tax in the last installment.
  • Besides this, if your tax liability is more than Rs.10000/- in respect of any other income, still you are expected to pay advance tax.
  • After paying tax through all these means or if you don’t meet the entire tax liability through TDS or advance tax then before filing the ITR you need to complete the tax liability by paying remaining tax and this is called as ‘Self-assessment Tax (SAT).
  • The Self-Assessment tax is charged and paid as per section 140A of the Income tax Act.

The SAT is a final tax amount paid by taxpayer before filing the return of income. Most taxpayers pay it just before filing ITR since you need to enter the details of taxed paid while filing ITR.

Computation of self-assessment tax

Follow these steps:

  • Compute taxable income
  • Compute tax liability on such income
  • Reduce TDS/TCS from such tax liability amount
  • Reduce advance tax amount from such tax liability amount
  • The resulting tax liability amount is the Self-assessment tax

This amount of self-assessment tax includes the amount of 234B interest and 234C interest charged on the taxpayer.

When this tax is paid by the taxpayer before filing the ITR, then the amount paid is adjusted firstly, against the component of interest (234B and 234C) and then adjusted against the amount of tax liability.

What will happen if the ITR is filed without paying S A tax?

Your ITR will be filed and accepted and S A tax liability will be shown as payable. Remember that this tax liability is the tax liability admitted and self-assessed by you.  And consequences may follow as per law.

  • As per section 140A (3) of the Income tax Act, if you don’t pay self-assessment tax, you make yourself liable to coercive action from the Department for recovery of self-assessment tax. The Department is not required to issue any notice for such action since you make yourself as deemed defaulter.
  • The Department may attach your bank accounts and assets for recovery of the demand
  • The Department may levy interest as well as penalty on the unpaid SA tax amount
  • The Department may also initiate prosecution for willful default in payment of taxes

How to pay self-assessment tax online?

Step-1

To pay taxes online, login to http://www.tin-nsdl.com > Services > e-payment: Pay Taxes Online or click on the tab “e-pay taxes” provided on the said website.

Step-2

Select the relevant challan i.e. ITNS 280. This is for payment of Income tax and corporate tax

Step-3

Enter PAN / TAN (as applicable) and other mandatory challan details like accounting head (20 for companies and 21 for other than companies and code 300 for self-assessment tax) under which payment is made, your address and the bank through which payment is to be made.

Step-4

On submission of data entered, a confirmation screen will be displayed. If PAN / TAN is valid as per the ITD PAN / TAN master, then the full name of the taxpayer as per the master will be displayed on the confirmation screen.

Step-5

On confirmation of the data so entered, you will be directed to the net-banking site of the bank.

Step-6

You have to login to the net-banking site with the user id / password provided by the bank for net-banking purpose and enter payment details at the bank site.

Step-7

On successful payment a challan counterfoil will be displayed containing CIN(Challan Identification Number), payment details and bank name through which e-payment has been made. This counterfoil is proof of payment being made.

Tax Deducted at Source (TDS) and Tax Collection at Source (TCS)

  • There are certain incomes which are received by you from the payer after cutting taxes out of it. For example, if you are about to receive Rs. 100 from someone as income, then he will cut/deduct Rs.10 from that amount and pay Rs.90 to you and Rs.10 as your tax to the Government on your behalf. This tax of Rs.10 is called as Tax Deduction at Source or TDS.
  • You must claim this TDS as pre-paid tax credit while filing your ITR.
  • After deducting TDS your deductor/payer pays the TDS into Government Account and issues a certificate of deduction to you. In case of salary income such a certificate is called as Form No. 16 and in case of other receipts it is called as Form No. 16A.
  • The government (Income tax Department) keeps a record of such TDS payments and one form is generated wherein all your tax payments can be seen, that is Form 26AS.

In case of Tax Collection at Source (TCS), the payer of the income/receipts or the buyer of specified goods collects the amount of tax from the purchaser and pays the same to the Government Account. The goods and services and the rates of such collection of tax at source are specified in the Income Tax Act.

These incomes and receipts which ought to suffer TDS are specified in the Income tax Act. Some of the common incomes are listed below:

 

Sr. No.

Section

Nature of payments

Where deductee is a person ‘Other than a Company’

Where the deductee is a Company

 

 

 

Resident in India

Other than resident in India

Resident in India

Other than resident in India

1

192

Payment of Salary

Slab Rate

Slab rate

NA

NA

2

192A

Payment of accumulated balance of Provident Fund

10

10

NA

NA

3

193

Payment of interest on securities

10

10

10

NA

4

194

Payment of dividends

NA

NA

10

NA

5

194A

Payment of interest other than interest on securities

10

10

10

NA

6

194C

Payments to contractors and sub-contractors

Individuals and HUF: 1

NA

Individuals and HUF: 1

NA

Others: 2

Others: 2

7

194D

Insurance commission

5

NA

10

NA

8

194DA

Payment in respect of Life Insurance policy

1

NA

1

NA

9

194H

Commission or brokerage

5

NA

5

NA

10

194I

Payment of rent

Immovable property: 10

NA

Immovable property: 10

NA

Machinery: 2

Machinery: 2

11

194IA

Payment on transfer of immovable property other than agricultural land

1

NA

1

NA

12

194IB

Payment of rent by individual or HUF who is not liable to audit in immediately preceding year

5

NA

NA

NA

13

194J

Payment against professional fees, technical fees, royalty, remuneration to a director and non-compete fees etc.

10

NA

10

NA

14

194LA

Payment of compensation on acquisition of certain immovable property

10

NA

10

NA

Read More about TDS on salary and others

Dividend Distribution Tax (DDT)

  • The companies distribute their earnings or profits to its shareholders which is known as dividend. The dividend may be paid as interim dividend as well as final dividend.
  • The Board of management of the company first declares the dividend and the amount of dividend per share. Then it declares the date from which it is applicable (record date). Then it distributes and pays the dividend.
  • This is a dividend income in the hands of shareholders. As per Income tax Act, till A Y 2018-19, this dividend income was exempt from tax (A Y 2018-19 the dividend income of more than Rs.10,00,000/-) is taxable at the rate of 10%.
  • Since this dividend income was tax free in the hands of received shareholders, it is subjected to tax in the hands of company which distributes this dividend. This is called as Dividend Distribution Tax (DDT)
  • The DDT is a final tax and neither the company nor the shareholder recipient can claim credit for such dividend amount
  • This Dividend Distribution Tax is governed by provisions of section 115O of the Income tax Act, 1961.

Who is required to pay?

The domestic companies in India who pay dividend to their shareholders are required to pay this Dividend Distribution Tax (DDT).

When is DDT payable?

The principal officer of the domestic company is required to pay the DDT within 14 days of any of the following event:

  1. declaration of any dividend
  2. distribution of any dividend
  3. payment of any dividend, whichever is earliest.

In case, the DDT is not paid within the time-frame given above, then the interest at the rate of 1% per month for every month or part of a month is charged from the due date (14 days) to the date of actual date of payment. (section 115P of the I T Act)

Rate of DDT

The rate of DDT is 15% of the grossed-up dividend amount. This does not include surcharge and cess.

Computation of DDT

The DDT is computed at the rate of 15% of the dividend paid or distributed by the domestic company. This ‘dividend’ is the base amount on which DDT is computed. Following amounts are reduced from the dividend for computing DDT:

  • the amount of dividend received by the domestic company from its subsidiary company
  • the amount of dividend if any paid to or on behalf of New Pension System Trust

Before 2014, the companies used to compute the base amount of dividend by deducting the amount of DDT from the base and then computing the base amount liable for DDT. The amount of dividend so arrived is ‘grossed-up’ dividend amount.

Explained:

If the company is distributing Rs.100/- as dividend, then the DDT amount will be Rs.15/-. Thus, the actual amount of dividend distributed is Rs.85/-. Thus, the company was paying DDT on this amount of Rs.85/- i.e. 15% of Rs.85/- which comes to Rs.12.75. Thus, instead of paying Rs.15/- as DDT the companies used to pat Rs.12.75 as DDT.

However, after amendment through Finance Act, 2014, this base amount is to be increased by the amount of tax (DDT) and thus after amendment, the DDT must be paid on the amount of Rs.100 and not Rs.85

Refund of Income tax

The income tax refund is the excess amount of tax paid by you in ITR and which is refunded by the Government sometime after your file your ITR. Many a times in your ITR, you pay tax more than your tax liability. This happens when TDS is cut on your income or you pay advance tax more than your tax liability. This excess tax paid by you is claimed as refund in the ITR. Such refund is computed in the ITR itself. Once the ITR is processed by CPC of the Income tax Department, this refund is computed and paid to you in your bank account directly.

Generally, the income tax refund does not arise after payment of self-assessment tax.

Illustrated:

Mr. Sumit is a salaried taxpayer and for F Y 2018-19, his TDS deducted by employer is Rs.70,000/. However, when he filed his ITR his tax liability came to Rs. 50,000/-. Thus, he has paid excess tax of Rs.20,000/-. Such amount is computed as income tax refund in his ITR.

Sections of Income tax

The refund is determined and paid to the taxpayer by the Income tax Department as per the provisions contained in Section 237 to section 245 of the Income tax Act, 1961.

Who can claim refund?

  • The person who has paid tax is entitled to claim the refund of excess tax paid by him.
  • In case where your income includes income of any other person, like income of a minor child included with the income of a parent, the parent is eligible to claim such income tax refund.
  • In case where any person is incapable to claim or receive the refund because of death, incapacity, insolvency, liquidation or other cause, his legal representative or the trustee or guardian or receiver as is relevant, shall be entitled to claim or receive such refund.

How is the refund determined?

In most of the cases, income tax refund is determined as a result of two proceedings, processing of ITR and order giving appeal effect.

  • After the ITR is filed, it is processed by CPC, Bengaluru. After such processing under section 143(1) of the Income tax Act, an intimation letter is generated. In case, you have paid excess tax, this processing computes your tax liability and adjusts the taxes paid and then computes the income tax refund. Know more about processing.
  • In certain cases, the ITR is picked up for scrutiny assessment and demand is raised against the taxpayer through the assessment order. Such assessment order is appealed before appellate commissioner by the taxpayer and he must pay certain portion of the demand. In case, the appeal is decided by the appellate commissioner in favor of the taxpayer, such demand paid by the taxpayer is refunded by the Income tax Department to the taxpayer. This is a refund generated after the effect to the appellate order is given.
  • There are certain other procedures where the refund is generated like Settlement Commission order, Revision orders passed by the Pr. Commissioner of Income tax under section 263 and 264 of the Act.

Interest on delayed income tax refund

  • In many cases, the income tax refund is not paid refund in due time and such refund is delayed. This means the taxpayer’s money paid as excess tax is used by the Government. Therefore, the Government pays interest on such amount for the period of delay of such refund payment. This interest on refund is paid as per the provisions of section 244A of the Income tax Act.
  • The rate of interest in such cases is 0.5% for a month or a part of a month.
  • When the ITR is filed on or before the due date of ITR filing, the interest is computed for a period commencing from 1st April of the Assessment Year to the date of granting of such refund. In case when the ITR is filed beyond due date of ITR filing, then the interest is computed from the date of furnishing such ITR to the date of granting of the refund to the taxpayer.
  • In case where the ITR is filed after payment of self-assessment tax, then the interest in such cases, is computed from the period of payment of such self-assessment tax or filing of ITR whichever is later. The rate of interest is 0.5% for each month or a part of the month.
  • In any other case, like payment of tax or penalty, the interest is computed for the period from payment of such demand of tax or penalty to the date of determination of such income tax refund.
  • When refund is determined as a result of appeal effect order or revision order, such refund must be granted within 3 months of receipt of such order by the Pr. Commissioner of Income tax. In case, if the refund is not determined and paid within such 03 months, then the taxpayer is eligible for additional interest at the rate of 3% per annum, for the period beginning from the date following the date of expiry of the time allowed under sub- section.

When can the refund be withheld?

  • In case, when the ITR of the taxpayer is selected for scrutiny assessment and 143(2) notice is served on the taxpayer, the Assessing Officer may withhold the refund of the taxpayer. But this can be done only after the prior approval of the pr. Commissioner of Income tax. This is as per section 241A of the Income tax Act.

Set off or adjustment of Income tax refund

  • In case when you have claimed the refund in your ITR, it may happen that there may be some tax demand pending against you in the Income tax Department records. In such case, your refund is set off or adjusted against such demand before it is paid to you.
  • This is done as per section 245 of the Income tax Act.
  • However, such an adjustment can be done only after giving an intimation in writing to the taxpayer of the action proposed to be taken.

Procedure to deal with 245 notice:

In cases of refunds generated by CPC Bengaluru, as a result of processing of the ITRs, the process is as follows:

  • In case of refunds due, based on the demand on CPC’s records, CPC issues a prior intimation as per section 245 of the IT Act to the taxpayer to adjust the refund against the demands due. The taxpayers can approach Assessing Officer regarding grievance relating to demand, if any, within 15 days of receipt of such intimation. The 245 notice looks as under:

  • In case of demands uploaded by the Assessing Officer on the CPC portal records, the Assessing Officer within 30 days of receipt of grievance in response to the notice u/s 245 is required to either rectify or confirm the demand. Such communication is sent by the Assessing Officer to the CPC through online portal.
  • CPC is required to hold the refunds (refunds may be determined but kept on hold) in the interim period and following confirmation from the AO carry out adjustment of refund against the demands.
  • Thus, in case of demands uploaded by the Assessing Officer, you must make effective submission before the Assessing Officer, if you don’t agree with the demand. The Assessing Officer will consider your submission and then communicate the status to the CPC.

 

  • In case of demands arose out of processing which are there on the CPC portal records, the taxpayer must communicate the acceptance or denial of such demands within a period
  • In case the demand is acceptable, the same should be communicated and the CPC will adjust the demand.
  • In case the demand is not acceptable or partially acceptable, you need to either file a revised return or rectification application for cancellation of such an outstanding demand. The steps for the same are as follows:

 

Step 1:

Login on to www.incometaxindiaefiling.gov.in

Step 2:

Click on “My Pending Actions”. You will see a screen given below:

 

Step 2:

You can then view, details of your outstanding demand and you will see a “Submit” button, you must click on it and respond to the outstanding demand. If you are not able to view the Submit button, it means that the CPC has already adjusted the refund against your demand.

Step 3:

After clicking on the “Submit” button, you will see the screen given below:

There are 3 heads available: –

  • Demand is correct,
  • Demand is partially correct and
  • Disagree with demand,

You will have to select the appropriate one and click on “Submit”.

 

  • This is the most-tricky part when you are not aware of which button or option to select and submit. Just try to remember whether your case was selected for scrutiny assessment some time in past and you don’t agree that the demand is still outstanding. If that is the case, then the demand is uploaded by the Assessing officer and you need to contact the Assessing officer and make a convincing submission to him on the issue.
  • If the demand is relating to demands generated by CPC through processing of ITRs of earlier years, try to remember if you had received any intimation letter specifying such demand and whether you had replied to that or filed rectification application. If there is a demand and if it’s correct, then click on ‘Demand is Correct’ and submit.
  • If you don’t remember or don’t agree with the demand, then click on ‘Disagree with demand’ and submit button.
    • After you click this, the portal will ask you about the reasons for outstanding demand and, you have to choose among that and the CPC will review the response.
  • If CPC agrees with your submission, it will not adjust the refund. However, if CPC doesn’t agree with the submission, your refund will be adjusted against the demand. The CPC will not send separate communication after this. It will either adjust the refund or not.

I have not received my refund, what could be the reasons? 

I have e-Filed my Income Tax Return but have not received my refund till now.

If you have not received your refund till date, it could be due to the following reasons:

1. Your Income Tax Return has not been processed yet.
Once the return is processed you may receive a Refund (if determined). To check the status of your e-Filed IT Return, login in the Income Tax e-Filing website and go to ‘My Account’ → ‘My Returns/Forms’.

  1. Your Income Tax Return has been processed but the Income Tax Department has determined no refund.
  2. Your Income Tax Return has been processed and a refund has been determined, but the Cheque/ ECS credit could not reach you.
    This could be because of: wrong addressnot being available at home(door locked) or wrong Bank Account number for ECS credit.
    To check if your Refund has returned back to the Income Tax Department, login and go to ‘My Account’ → ‘My Returns/Forms’ and check the status.

2. I checked the status of my IT Return and it is displayed as ‘Refund Returned’. How can I apply for it again?

Login in the Income Tax e-Filing website and go to ‘My Account’ → ‘Refund Re-issue request’. Select the mode of re-receiving the refund: ECS or Cheque, Provide the Bank Account number (if changed) and Provide Address details.

3. My Bank Account Number has changed. I want to change the Bank Account Number which I mentioned in my Income Tax Return.

You can only change your Bank Account Number if you had a refund failure i.e your IT Return is processed and a refund was generated for you but you did not receive it.
If you wish to change the Bank Account Number for Refund failure case, then login in the Income Tax e-Filing website and go to ‘My Account’ → ‘Refund re-issue request’. Select the mode through which you wish to receive the refund- ECS or Cheque. Enter the new Bank Account Number and provide address details. Submit the request.Once the request is submitted, your new Address is updated with the Income Tax Department.

4. My refund failed to reach me as my Address has changed. I want to raise a request for refund re-issue with my new Address.

You can only raise a request of refund re-issue if your refund failed to reach you and was returned to the Income Tax Department. In that case, login in the Income Tax e-Filing website and go to ‘My Account’ → ‘Refund re-issue request’. Select the mode through which you wish to receive the refund- ECS or Cheque. Provide the new Bank Account Number (if to be changed) and provide the new Address. Submit the request. Once the request is submitted, your new Address is updated with the Income Tax Department.

5. My Address has changed. I want to change the Address/ e-mail ID/ Mobile Number which I mentioned in my Income Tax Return

Login in the Income Tax e-Filing website and go to ‘My Profile Settings → ‘Update Contact details’. Provide the new Address/ e-mail ID/ Mobile Number and submit. Once submitted, your Address / e-mail ID / Mobile number is updated in your profile and also sent to the CPC (Central Processing Center) to update on the Income Tax Return