• Notification Date: 25-08-2023
• Notification No: N/A

Taxpayers to Receive Tax Notice if they do not Return Excess Income Tax Refund

The Income Tax Department, in recent years, has started to process income tax returns (ITR) quickly. However, this quick processing of ITRs has created problems. This is because the faster processing of ITR leaves no time for tax filers to correct their mistakes made in the original ITR. 

How to solve problem of excess tax refund? 

Some individuals would not have yet received an income tax notice for claiming an excess tax refund. For such individuals, tax experts suggest they should quickly file a revised ITR and pay back the excess tax refund before the tax notice is sent by the tax department. 

Dr Suresh Surana, Founder, RSM India, a consulting group says, “If an individual has received the excess tax refund, then the individual can file the revised ITR to return the excess amount before any income tax notice has been issued by the income tax department. If the assessing officer issues tax notice due to excess tax refund paid, then the individual will lose the opportunity to file revised ITR. The tax officer can issue tax notice under section 143(3), 147 or 144, wherever additional interest penalty may be applicable. However, it is pertinent to note that interest under section 234D would be applicable even in case where individual is filing the revised return.” 

Will there be a penalty on filing revised ITR? 

As mentioned above, to repay the excess tax refund, an individual will be required to file a revised ITR. According to tax experts, this excess tax refund amount should also be paid along with penal interest. An individual is liable to pay penal interest irrespective of whether they have received an income tax notice or not. 

“Interest under Section 234D is charged where an excess income tax refund is paid to the individual. The penal interest is levied at the rate of 0.5 per cent per month on the amount of tax refund which was not actually due to the individual. The excess tax refund along with penal interest can be paid through the e-pay facility of the e-filing portal,” said Naveen Wadhwa, VP, Taxmann, a Delhi-based book publishing company. 

There may be situations where additional tax liability arises while filing a revised ITR. “If the tax payable is more than the tax refund received while filing revised ITR, then the individual would also be liable to pay interest under section 234B/C," says Hitesh Jain, Associate Partner, Direct Taxation, N.A. Shah Associates, a Mumbai-based CA firm. 

What if you don’t return the excess tax refund? 
 

It is quite possible that an individual filed his ITR claiming excess deductions or omitted taxable incomes to receive the tax refund but has not yet received a tax notice from the tax department 

Tax experts advise that an individual should pay back the excess tax refund as soon as possible, which is not rightfully entitled. 
 
“In case the income department finds that the taxpayer has claimed bogus deductions, the income tax department may treat the same as misreporting of income, which may result into levy of penalty at the rate of 200 per cent of tax under section 270A and the same may also lead to initiation of prosecution against the taxpayer in some cases,” says Jain.