What Are the Refund Rules Proposed By New Income Tax Bill?
The New Income Tax Bill 2025, set to replace the existing Income-tax Act, 1961, proposes significant changes to the refund process, aiming to streamline and simplify the system for taxpayers. The bill will be tabled in the Parliament on Thursday.
Here’s a breakdown of the key provisions mentioned on the new Income Tax Bill regarding the refunds:
Eligibility for Refunds:
The Bill clarifies that a refund is due when the tax paid by an individual, either directly or through deductions, exceeds the amount they are actually liable for under the Act. This includes situations where:
* Excess Tax Paid: An individual has paid more tax than they are legally obligated to.
* Income Included in Another Person’s Total Income: Where one person’s income is included in another person’s total income under the Act, the latter is eligible for a refund.
* Denying Liability to Deduct Tax: A person who has paid tax on behalf of another individual, but believes no tax should have been deducted, can apply for a refund within 30 days of payment.
* Appeal or Rectification: If an appeal or rectification order results in a reduction of tax liability, a refund becomes due.
Claiming a Refund:
The Bill mandates that all refund claims must be made by furnishing a return of income as per Section 263. This ensures that the tax authorities have a complete picture of the taxpayer’s financial situation.
Processing and Granting Refunds:
The Bill outlines a clear process for processing refund claims:
* Intimation: The tax authorities will issue an intimation to the assessee specifying the refund amount determined.
* Adjustment: The refund amount will be adjusted against any outstanding tax liability.
* Granting Refund: The refund will be granted to the assessee after the adjustment process is complete.
Interest on Refunds:
The Bill introduces provisions for interest on refunds, aiming to compensate taxpayers for the delay in receiving their money:
* Interest Calculation: Interest will be calculated at a rate of 0.5% per month or part of a month on the refund amount.
* Interest Period: The interest period will be calculated from the date the refund is granted to the date of regular assessment.
* Reduction in Interest: If a subsequent order under specific sections of the Act determines that the refund was correctly allowed, the interest chargeable will be reduced accordingly.
Set-off and Withholding of Refunds:
The Bill also addresses situations where refunds may be set off against outstanding tax liabilities or withheld:
* Set-off: The refund amount can be set off against any outstanding tax liability of the assessee.
* Withholding: The tax authorities can withhold refunds for up to 60 days if proceedings for assessment or reassessment are pending.
Time Limits:
The Bill specifies time limits for processing and granting refunds:
* Intimation: The intimation regarding the refund amount must be sent within one year from the end of the tax year in which the statement is filed.
* Assessment: The assessment process, which determines the final refund amount, must be completed within a specified timeframe.
