Monday, August 1, 2011

How to claim refund while filing income tax return

Have you failed to reporting some tax saving investment to your employer or did you make the investment after submitting your investment declaration to the employer? Then there is a possibility of you being eligible for a tax refund.

"A tax refund could be due to the following: tax deduction at source at a rate higher than the actual tax payable; wrong (ie, higher) estimation of income while computing advance tax liability; not reporting all investments to the employer while the employer deducts taxes on salary; and claim of exemption in tax returns," says Sonu Iyer, tax partner, Ernst & Young.

Most companies require employees to declare at the beginning of the financial year their proposed investments for tax exemptions/deductions. House rent and leave travel allowances are the common exemptions that can be claimed, while interest on housing loan, investments in PPF, NSC, ELSS, life insurance premiums, home loan principal repayment, stamp duty/registration fee, and long-term infrastructure bonds come under common deductions. Other deductions include medical insurance premium (section 80D), interest on education loan (section 80E), maintenance of disabled dependent (section 80DD), etc.

"Some employees fail to make the declaration, while some may give the details but fail to provide the relevant documentary proof within the time frame prescribed by the employer. In either case, employees can claim tax exemptions/deductions only while filing tax returns.

This results in a tax refund," says Vaibhav Sankla executive director, Adroit Tax Services. "The deduction on interest on the housing loan, based on the provisional certificate obtained from the housing finance company/bank during the financial year, is reflected in Form 16. For FY 2010-11, since the rates were on the rise, the final certificate would show a higher amount of interest for those who took loan on a variable rate. This, too, can be a reason for a tax refund claim," Sankla says. In the case of retired individuals/senior citizens, banks deduct income-tax at source if they fail to furnish declaration in Form 15G/15H for non-deduction of tax on their interest income. Further, if PAN is not provided, the deduction rate goes up to 20% from 10%.

For non-residents, banks often deduct taxes at 30.9% (or lower as per India's tax treaty with the country they reside in) on the interest earned by NRO accounts. Even tenants of non-resident landlords deduct income tax at 30.9% on the rent paid. Most nonresidents fall in either the 0% or 10% tax slab as their Indian income is limited. This means, nonresidents often claim refund of the excess tax deducted.

Some individuals pay advance tax on the capital gains they expect during the year. This can be adjusted against any capital loss they may incur later in the year. The amount of capital gain could also be lower due to indexation, deductions u/s 54/54EC/54F, incorrect cost calculation etc.


"Taxpayers should first calculate their final tax liability in accord-inance with the tax slabs applicable to them. If the total tax liability is less than the taxes paid or deducted during the year, they would be eligible for a tax refund," says Vineet Agarwal, director - tax and regulatory services, KPMG. Ensure tax exemptions and/or deductions are mentioned correctly. In the case of a home loan, for instance, ensure the amount on the final certificate from the housing finance company is the same as in the provisional certificate you submitted to the employer.


"For calculating refund, you have to calculate taxes on income after applying the applicable income tax rates. Once you arrive at the total tax payable, deduct all the tax deducted at source and advance taxes and self assessment tax paid (if any). The balance (if negative) is the refund amount," Iyer adds.


The most common reason is incorrect calculation of tax payable by the taxpayer. "Refund can also be rejected if the amount shown as TDS in the returns does not match with the details in the database of the income-tax department," Agarwal of KPMG says. If you have mentioned the PAN or assessment year wrongly, then, unless corrective action is taken, the refund claim will be rejected.


If you filed returns online, visit html to know the refund status. Enter your PAN, select the assessment year and click submit to get the details. You can also send an email to or refunds@i for refund related queries. If you have filed the returns through a chartered accountant, you can check the refund status by contacting the SBI helpdesk or the aaykar sampark. It would be advisable to follow up with the assessing officer of the jurisdiction where the return was filed to get the correct status.

E-filing results in quicker refunds. "Taxpayers should mention the correct bank account number if they want the refund cheque to be deposited in their account. If a taxpayer wants the refund directly credited to the bank account, then he/she should provide the MICR of the bank's branch as well," Sankla says. If you opt to receive the refund by way of cheque, ensure that you mention your permanent address in the tax return form. Else, in case you change the address before receiving the refund, the refund cheque would be returned undelivered to the I-T department. If the cheque is invalid/expired by the time it reaches you, intimate the jurisdictional office and send the cheque back to the refund banker for re-issue.

In cases of e-filing, the refund is received within two to seven months. For offline returns, it often takes anywhere between one and two years. In case you haven't received your tax refund, file an application with the grievance cell or the income-tax ombudsman. "The taxpayer should visit the tax office for follow-up action on the refund and enquire about the reasons for it not being processed. The taxpayer may also approach the assessing officer ('AO') concerned, with necessary documents. However, if no action is taken by the AO, the taxpayer can write to the jurisdictional chief commissioner with copies of the letter/s written to the assessing officer and with a copy of the tax return filed," says Agarwal.