have been receiving quite a few queries on Income Tax Refunds and I thought it will be opportune to explain the benefits and the important factors to take note of, for a quick income tax refund.
Delay or non receipt of tax refund is the biggest grievance of many taxpayers.
Unintentional error in bank details, delay in processing of paper income tax return (ITR), and change in residential address are among the few common reasons for the delay.
Many NRI’s and seafarers don’t file income tax returns due to various pre-conceived conceptions and we have observed that not filing income tax returns is one of the major factors for not getting a tax refund for NRI’s/seafarers.
While filing income tax returns, there is always a possibility of committing some errors of omission and also errors of commission by any individual. Errors can be done by any taxpayer as they are always in a hurry to file their return when the due date approaches, however, the errors should be rectified in order to avoid payment of penalty and interest and the taxpayer should be more vigilant while filing income tax return.
We highlight eleven common reasons you could possibly be making and hence you are either not getting a refund or getting delayed refunds.
1. File Returns
Filing your income tax return (ITR) is a compliance requirement that needs to be attended by taxpayers every year. Most tax payers have a vague idea about how it works and end up making mistakes that can take away a lot of their time and energy and moreover put you at a risk of non-compliance.
There are some individuals who make the mistake of not filing the tax return itself.
While a category of persons has been made exempt from tax filing, every individual, including NRI’s, have to file ITR if they want to claim an income tax refund. Even if your income is not taxable or if your income is below exemption limit, it is recommended you file tax return as it helps in statutory requirements and compliance and off-course claim for a refund.
The processing time for tax refund is not standardised. It may be processed as early as 20 days or it may take up to two years in some cases. But from the past year, the tax department has standardised the refund process and there is now some reason in the mayhem. One of the primary reasons in streamlining of the tax returns and the tax refund process is the option of electronic filing (e-filing). Moreover a CBDT mandates individuals earning an annual income of Rs 10 lakh and above to file their income tax return (ITR) online. To get the tax refund with reduced hassle and relatively in shorter spans of time, it is advisable to do e-filing, unless there is some strong reason not to do so.
3. Timely Filing
Don't continue with your practice of dumping the task of filing returns to your neighbourhood help, who acts as your investment advisor or insurance agent and that too at the 12th hour, just before the due date of filing you tax returns approaches.
Preparing a proper tax returns requires your tax consultant to go through your books (bank statements / investments / loans, etc.) and then draft out a books of accounts which is then used to prepare the income tax return which is filed on your behalf.
If you visit your tax consultant near to the last date, neither he, nor you will have the time and patience to prepare a books of accounts or a computation of income and you will file your returns directly which is absolutely not advisable.
The due date of filing returns for individuals is 31st July, however if you are not able to prepare your accounts and file your returns by 31st July, you can file the returns till 31st March of next year. Effort should be made to file the returns by the 31st of July but not at the cost of incorrect information and incorrect returns.
4. Incorrect ITR Form
Various Income Tax return forms are notified by the IT department for filing income tax return which depend on the sources of income that you may have or depending on your status (Resident/Individual).
It is imperative that you select and fill the ITR form applicable to you. The website site of the income tax department (or if you have a professional and qualified tax consultant), will provide a detailed explanation about the relevant forms to be chosen.
Make sure that you download or print the one meant for you. If you make a mistake in choosing the right form, the entire exercise of filling will go waste.
5. Declaration of Income
NRI’s and seafarers have income which is not taxable in India, and most of them make a mistake of not declaring the same in the tax returns. As these specified “tax free” incomes are not chargeable to tax in India, you should declare the same clearly and specifically in your accounts and returns.
Moreover several incomes, such as NRE account interest, dividends and long-term capital gains on listed securities, are exempt from tax. Even though you do not need to pay any tax on these incomes, you must report these in your ITR as these incomes are reported to income tax department by companies and brokerage firms. Otherwise, data reconciliation by income tax department may lead to a notice. Moreover most financial transaction can be accessed by the tax department through various regulatory bodies.
Since all banks deduct tax at source for interest accrued on your fixed deposit accounts, it doesn’t mean you don’t assess your tax liability and mention it in your form. In reality, banks only deduct generally, 10% tax deducted at source (TDS) on interest income, whereas you may be in the higher tax slab of 20% or 30%. Recently, the income-tax department has started reconciliation of TDS data received from banks and the interest income reported by individuals in their returns. So if you don’t give information about interest income in the return form, there is a chance that you may receive a notice from tax department.
Due to the slowdown in economic growth, corporate earnings have decreased. So, to step up tax earnings, the I-T department has launched a campaign to track high value transactions.
The Department can ask the taxpayer to explain the source of money, verify the accounting recorded for the transaction in the ITR and furnish PAN card details. Transactions between persons who are not income tax assessees or those who didn’t reveal their PAN while entering the transaction has also be brought under the scanner.
Defaulters may have to cough up almost 300% of the unpaid tax levy and if the case demands, prosecution.
Hence it is advisable to stay clean and sleep well and declare all income as most of it in your case will be tax free anyway.
6. Late Submission of Acknowledgements (ITRV)
The return is not filed until the acknowledgement or the ITR-V reaches the Income Tax Department’s (CPC) office in Bangalore. Don’t expect any refund if the ITR V has not been filed.
You are supposed to take a print out of ITR V, sign it and send it to the income-tax department’s Bangalore office within 120 days. Many forget to send the signed acknowledgement. Unless you send the acknowledgement, you technically are not done with the entire process of filing returns.
Though you get 120 days to send ITR V, many make the mistake of sending it via a courier in the last-minute. The income-tax department only accepts ITR V acknowledgements sent by normal post or speed post.
If you have obtained a digital signature, however, the process will be completed at your end upon uploading the e-return.
7. Tax Payment & Tax Credit
TDS : Before completing the return filing procedure, ensure that you have the details of your tax deducted at source. Check your Form 26AS to understand if you have received the credit from parties who deducted the taxes. The income and the details of the taxes deducted, advance tax or self-assessment tax paid should be taken into consideration while filing the return of income. This will ensure correct issuance of refund and avoid additional tax demands due to proper tax credits not being granted.
If the TDS details in your form do not match the data with the Income Tax Department, expect your refund to be put on the backburner.
If there are lots of TDS entries (some taxpayers can have up to 70-80 entries), your assessment may take a little longer. Obviously, the refund also gets delayed.
If you are filing a physical return, you need to clear your slate before filing the returns. Payment of taxes is a must before filing tax return.
TAN Number : In respect of tax deducted at source (TDS), it is mandatorily required to furnish the TAN number of the deductor.
If the TAN no. of the employer is not correctly entered or wrongly provided then you will not get the credit of your tax deducted.
8. Professional Advisory & Assistance
Many insurance agents and investment advisors double-up as tax consultants or tax agents. This is similar to a veterinary doctor doing a by-pass surgery of the heart on you. I have seen clients whose returns have been filed by ‘agents’ only on the basis of a PAN Card and with no bank statements, no investment documents or for that matter no other documents at all and surprisingly one of my client was happy, that his ‘agent’ did not need any documents to file returns.
Normally taxpayers have un-qualified tax consultants due to the lack of knowledge or due to non-availability of a professional tax consultant. However in the wired world, distances are generally not a concern and you can appoint a trusted advisor to the city or town which you frequent once a year, as tax related matters normally require attention only once a year and most of the communication nowadays can be done on e-mail, hand phone or using courier services.
I would suggest you to take advisory from a professional and qualified individual or firm which could be at a higher per annum cost compared to your neighbourhood agent and it may also involve more of your personal involvement, but this is better for your long term financial well being.
9. Employer Declaration
Tax Declaration : Some employees who are employed in India require to declare their investment and other details to their company for tax computation in the beginning of the financial year. Many of them declare the details of the tax exemptions or deductions they are eligible to claim but fail to provide the relevant documentary proof to the employer organisation within the timeframe prescribed by the employer, which results in higher tax out flows and then entitles them with claiming a tax refund when filing tax returns. This can be avoided if proper declaration is done during the beginning of the year and supporting documentary evidence is provided to the employer during the fag end of the year when most employers ask for the documents.
Multiple Form 16’s : If you’ve changed jobs in the middle of a financial year, ensure that you collect Form 16’s from both the employers. Many make the mistake of reporting only the current employer’s income in their returns. Since you’ve availed tax benefits from both employers, there could be a good possibility that you still owe some additional tax liability at the time of filing tax returns. Moreover, due to multiple Form 16’s your total income tax slab could be higher than each of the employers have computed taxes for. If you have not shown your earnings with the previous employer to the present employer, there is also a chance of paying extra tax, especially if you are in the high income bracket.
Deduction on account of donation is generally not considered by the employer while deducting tax on salary income. Hence this deduction then can be claimed at the time of tax return filing.
11. Nota Bene
Account Number : In order to ensure a hassle-free and timely refund, you should provide correct details, such as the bank account number and MICR code of the bank branch, in the tax return. This will facilitate direct credit of the tax refund amount in the tax payer's bank account.
In case of refund through cheque, one should ensure that along with the account details address mentioned in the return is correct. If you receive a cheque after its expiry, you should approach the concerned tax ward / circle where you have filed your return for re-issue of refund cheque.
It is better if an individual opts for a direct credit facility as the expiry date on cheques have been reduced, to three months from six months from the date of issue.
Moreover, newly-married/divorced females should ensure that the name in the bank account provided is the same as the one on the PAN card.
Incorrect Address : Though direct credit of refunds has removed the problem due to incorrect address’ to a large extent, there are still some taxpayers who do not prefer direct credit in bank account and provide old or incorrect addresses and then there is an eternal wait for the refund cheque.
Job changes and transfers are so common these days that most land up staying in rental accommodations, which needs to be changed every 11 months, or working people hostel where accommodation is permitted for a couple of years. Moreover the office email ID keeps changing with every job change and in some cases even location change. But the ITR form needs both—your physical address and email address.
Many individuals make the mistake of providing email IDs which are either not in use or get discontinued due to inactivity or change of jobs. One should make sure that a valid and functional email ID, which you regularly access, is provided in the form. In other words, avoid giving your office email; instead give a personal email account, which you use regularly.
For your physical address, it is always safer to give a permanent address instead of your rented accommodation. If you are staying in a rental accommodation or hostel, avoid mentioning that address on the form. Instead, mention your permanent address, even if it’s in a smaller town. If you are expecting a refund, and you move from your current location, you may not be able to get hold of the refund cheque that easily.
Jurisdiction : If the taxpayer provides wrong jurisdiction which is obtained from the Income Tax site through the PAN of the assessee then delay is caused in processing of income tax returns or your return may be rejected by the Department. One should be careful while providing proper jurisdiction to avoid rejection or delay in filing of returns.
Status : Filing income tax return under wrong status can create a big impact on the type of deductions you would receive on tax return. Choosing the correct status is crucial in order to claim applicable deductions.
Number Jumble : You miss scrolling your mobile pad and the game goes back to level 1. Similarly, you miss filling in one number or character of your permanent account number (PAN) and the form cannot be processed. Besides, you could be levied with a fine of Rs.10,000 for an incorrect PAN entry, as per income-tax rules.
Double check all the numbers before submitting your tax returns.
We have tried to keep these points as simple as possible and we hope these details and check points will help you get tax refunds in an easier and faster mode.
Tax Assist is a professional income tax consultancy in India for both corporate houses and individual tax payers; the latter comprising Salaried Individuals, Seafarers, Professionals and Non Resident Indians.
With the help of Tax Assist and its team of income tax professionals, taxpayers can minimize their Income Tax liability, maximize their net income and create opportunities to save for current and future needs while maintaining proper accounting standards and income tax returns which are compliant with the Law.