Refund of Income Tax AY 2026-27

By | May 8, 2026
0 Comment

Refund of Income Tax AY 2026-27

Introduction

A taxpayer can claim an income tax refund by filing an Income Tax return (ITR) if the taxes paid exceed the actual tax liability . Refunds are processed by the Centralised Processing Centre (CPC), Bengaluru. In certain cases, the Assessing Officer (AO) may set off or withhold the refund with prior approval. The Income-tax department pays interest on refunds for the specified period.

Claiming an Income-tax Refund

Who Can Claim?

  • The taxpayer himself can claim the refund. However, if the taxpayer is unable to claim it because of his death, incapacity, insolvency, liquidation or other cause, his legal representative or trustee or guardian or receiver can claim refund.

How to Claim?

  • By filing an ITR (original, revised, or belated return).
  • Refund claims cannot be made through anupdated return.
  • ITR verification is mandatory for processing.

Time Limit to Claim

  • Refunds can be claimed up to the due date of belated/revised return.
  • In case of delay, a condonation request can be filed (Circular No. 11/2024).

Calculation of Refund

  • Compute Total Income, which means Income taxable under Salary, House Property, Business/Profession, Capital Gains, and Other SourcesLessDeduction under sections 80C to 80U.
  • Determine the Tax on total income based on normal/special rates. The tax is reduced by the rebate ofsection 87Aand increased by the surcharge and education cess, as applicable.
  • Deduct prepaid taxes (TDS, TCS, Advance Tax, and Self-assessment Tax) and Add interest undersections 234A,234B, 234C and late fee under section 234F.
  • Refund = Excess tax paid over actual liability.
  • The refund amount due to the assessee is rounded off to the nearest multiple of Rs. 10.

Set-Off & Withholding of Refund [Section 245]

Set-Off of Refund against Tax Demand

  • If a taxpayer has an outstanding tax demand, the due refund can be adjusted after prior intimation.
  • The Assessing Officer, Commissioner, Principal Commissioner, Chief Commissioner, or Principal Chief Commissioner can pass the order to set off the refund.

Withholding of Refund

  • Refund may be withheld if an assessment or reassessment is pending.
  • Refund can be withheld up to 60 days from the date on which such assessment or reassessment is made.
  • The AO can pass the order to withhold the refund after recording the reason in writing and with the previous approval from the Principal Commissioner or Commissioner.
  • The refund can only be withheld if the refund is Rs. 10 lakh or more [Instruction No. 02/2023, dated 10-11-2023].

Interest on Refunds

Refund from Prepaid Taxes (TDS, TCS, Advance Tax):

  • Interest at 0.5% per month or part of the month.
  • Payable from April 1 of the Assessment Year if ITR is filed within the due date.
  • If ITR is filed late, interest starts from the filing date.
  • No interest if the refund is less than 10% of the tax determined.

Refund from Self-Assessment Tax:

  • Interest at 0.5% per month or part of the month.
  • Payable from the ITR filing date or tax payment date, whichever is later.
  • No interest if the refund is less than 10% of the tax determined.

Refund arises due to Appeal or Revision Order:

  • Standard Interest: 0.5% per month or part of the month until the refund is granted.
  • Additional Interest (3% per annum):

o Additional interest is given at the rate of 3% per annum if the AO/TPO delays appeal/revision implementation beyond the time allowed under Section 153(5).

o The period for additional interest begins from the date following the expiry date of the time allowed under section 153(5) to the date the refund is granted.

o The period for which the refund is withheld under Section 245(2) shall be excluded for the payment of additional interest of 3%.

Refund to Tax Deductors (TDS Refunds):

  • Interest at 0.5% per month or part of the month.
  • Payable from the date of filingForm 26B(refund request).
  • If a refund arises due to an appellate order, interest is calculated from the date of the TDS deposit.

Refund due to Rectification Orders [Section 155(20)]:

  • Interest at 0.5% per month or part of the month.
  • Payable from the date of rectification request to the date of refund.

Other Refunds:

  • Interest at 0.5% per month or part of the month from the tax payment date to refund issuance.

Other Important Points

  • If proceedings resulting in a refund are delayed for reasons attributable to the assessee or deductor, such period shall be excluded from the period for which interest is payable.
  • If a refund amount is revised due to an assessment/rectification/appeal/revision order, the interest amount will be revised accordingly.
  • If the interest amount is reduced due to such an order, the Assessing Officer (AO) will issue a notice of demand to the assessee.