Received excess Income Tax Refund; Return it else you may get Tax Notice

In recent years, the Income Tax Department has begun processing income tax returns (ITRs) more promptly. However, a quick processing of ITRs created issues. This is because the quicker processing of ITRs leaves no time for tax filers to correct errors in the original ITR.

An individual left out to include information about certain taxable incomes in his original ITR. As a result, he received a tax refund in excess than he was entitled to.

In such a case, what may a person do? Read this article to find out.

File Revise Return and Repay the Excess Tax with Interest

Some people would have yet to get an income tax notice for claiming an excess tax refund. Tax experts recommend that such individuals file a revised ITR and return the excess tax refund as soon as possible, before the tax department sends them a notice.

If an individual receives an excess tax refund, they can file a revised ITR to return the excess amount before the income tax department issues an income tax notice. If the assessing officer issues a tax notice because of the excess tax refund, the individual will lose the opportunity to file a revised ITR. The tax officer may issue a tax notice under sections 143(3), 147, or 144 where an additional interest penalty is applicable. However, it is important to remember that interest under section 234D applies even if the individual files a revised return.

Will there be a penalty for filing a revised ITR?

As previously stated, to repay the excess tax refund, an individual must file a revised ITR. The excess tax refund amount should be paid, together with penal interest. Individuals are required to pay penal interest regardless of whether they have received an income tax notice or not.

Interest is assessed under Section 234D when an individual receives an excess income tax refund. The penal interest is calculated at a rate of 0.5% per month on the amount of tax refund that was not actually payable to the individual. The excess tax refund, along with penal interest, can be paid via the e-pay feature of the e-filing system.

There may be cases where additional tax liability occurs while filing a revised ITR. If the tax payable exceeds the tax refund received while filing the revised ITR, the individual is also required to pay interest under section 234B/C.

What happens if you fail to return the excess tax refund?

It is possible that an individual submitted an ITR claiming excess deductions or withheld taxable income in order to earn a tax refund but has yet to receive a tax notice from the tax department.

Tax experts recommend that individuals repay any excess tax refunds to which they are not entitled as soon as feasible.

If the income department discovers that the taxpayer claimed bogus deductions, the income tax department may treat this as income misreporting, which may result in a penalty of 200 percent of tax under section 270A, as well as the initiation of prosecution against the taxpayer in some cases.