Budget 2024 proposes to Extend the withholding period of Income Tax Refund

The Union Budget has suggested extending the time to withhold income tax refunds to 60 days from the date of reassessment by the government. Right now, the law allows the tax department to hold back refunds if there are outstanding tax demands. This is covered under Section 245 of the Income Tax Act.

When the taxpayer is due a refund, their assessment or reassessment is pending. The tax officer can hold a refund with the approval of a higher authority. However, taxpayers do not get extra interest on these withheld refunds under Section 244A of the Income Tax Act. This means they lose out on earning interest on the money that is held back during this period.

Currently, the tax law allows holding back refunds only until the assessment is complete. Since tax demands become due 30 days after the assessment, the new proposal suggests extending the withholding period to 60 days from the assessment date. This change is set to start on October 1.

Tax experts however believe this change is unfair to taxpayers. A Tax advocate says extending the withholding period to 60 days is not a good idea. Taxpayers will miss out on earning an additional 3% interest under Section 244A(1A). He suggests that this amendment needs a review.

A Chartered Accountant also points out that not paying interest on the withheld tax refunds until the assessment is finished is prejudiced against the taxpayers.

This proposal in the Union Budget aims to give the tax department more time to hold refunds, but many believe it puts taxpayers at a disadvantage by denying them potential interest earnings.