Income tax Refund and Self Assessment Tax
Income tax Refund and Self Assessment Tax
In this ripple, we shall discuss about Income tax refund and Self assessment tax, which share a mutually exclusive relationship among one another. This means, that at the end of the tax period, the tax payer will either pay self assessment tax, or apply for a refund.
Self Assessment Tax and Income Tax Refund - Relationship
The relationship between Self Assessment Tax and Income Tax Refund can be explained with the understanding of these concepts:
- Calculation of Tax Payable on total income in the return of Income
- Deducting taxes already paid during the year as TDS and advance tax
- Calculation of Self Assessment Tax / Refund
Calculation of Tax Payable on total income in the return of Income
At the end of every financial year, the income tax department expects the taxpayers to deposit their unpaid taxes. For this purpose, it allows some months for assessment (example, the months of April to July for individuals, since the last date to file returns is 31st July).
During this period, a tax payer summarizes his income from all taxable (eg salary)and non taxable (eg agricultural Income) sources earned throughout the year, in his return of income.
On this basis, he computes his tax liability on his total income. This amount represents how much tax he should pay to the department for ALL his income.
Deducting taxes already paid during the year as TDS and advance tax
While preparing the return, a taxpayer should deduct the taxes already paid by him (TDS, Advance Tax etc) from the total tax liability.
He should fill the respective TDS and Advance Tax fields with the correct details. Doing this will reduce his total tax liability with the amounts of taxes already paid by him.
Calculation of Self Assessment Tax / Refund
Now, in this stage, it will be evident to the taxpayer:
- The amount of taxes he is supposed to pay to the department
- The amount of taxes he has already paid to the department.
After this, basic math will let a taxpayer know whether he needs to pay more taxes to the department, or whether he has paid more than required an thus is eligible to claim refund of excess taxes paid.
In case the taxpayer needs to pay more taxes to the department, he will pay it by the way of self assessment tax, in Challan 280, and mention the details of payment in the return of Income. This will bring down the tax liability of the taxpayer to NIL in the return itself.
And if the taxpayer has already paid more tax than required under law, he will claim for a Refund of Income tax in the income tax return itself, asking the department to refund the excess amounts back to him.
Example:
Lets Say Mr A and B have prepared their returns and computed their total tax liability for the period as
Total Tax Liability
Mr A: Rs 3,00,000/-
Mr B: Rs 2,50,000/-
Let's also say Mr A had paid Advance tax of Rs 1,50,000/- during the year and TDS of RS 1,70,000/- has been deposited by his employer in his credit as TDS.
Similarly, Mr B has had paid Advance tax of Rs 1,00,000/- during the year and TDS of RS 1,00,000/- has been deposited by his employer in his credit as TDS.
Total Taxes Alreay Paid (TDS and advance tax):
Mr A : Rs 3,20,000/-
MR B : Rs 2,00,000/-
Here, Mr A has paid more taxes than he is required under law, thus he can claim a refund for the additional Rs 20000 in his return of Income itself
However, Mr B has paid Rs 50,000/- less than he is required under law, so he will pay a self assessment tax of Rs 50,000/-, enter the details of such payment in his return, and file the return (after making sure final tax liability is appearing NIL).
