Income Tax Refund - Basic Concepts
Income Tax Refund - Basic Concepts
If in any year, a person has paid taxes to the department in excess of the the income tax calculated in his return, the department returns the excess amount to the person after his return is processed. This excess amount is called income tax return.Income tax refund is defined under section 237 of the Income tax act.
Refund is based on two concepts
- The tax that you have actually paid (by means of TDS, Advance Tax, Self Assessment Tax etc)
- The tax that you are supposed to pay on your income. (Calculated in the Income tax Return)
-1- The Tax That You Actually Pay:
Even the return of income is prepared after the end of the financial year, an individual pays taxes all year round. Such taxes are collected by the department by means of:
- Tax Deducted At Source (Salary, Professional Payments, Rent, etc),
- Advance Tax (Capital gains on shares, interest on fixed deposits, winnings from lottery or races, and capital gains on house property besides his regular business/salaried income etc) or
- Self Assessment Tax (Voluntary payment of Tax)
-2- The Tax You are supposed to pay
At the end of the financial year, before the due date (eg 31st July for Individuals) a person summarizes his total income earned during the financial year in his Return of Income.
In this return, he calculates the proper amount of tax he is supposed to pay. If the tax he actually paid is higher than this calculated amount, then he can apply for a refund in the same return of Income.
The refund is issued after the return is processed and the refund amount is confirmed by the department.
