Legal Reference
Section 295 (refund), Section 296 (interest on refund 0.5%/month), Section 297 (set-off of refund against demand), Form 30 (claim refund), ITA 2025
1. When Does a Refund Arise?
An income tax refund arises when taxes already paid (TDS + advance tax + self-assessment tax) exceed the actual tax liability for the Tax Year. Common causes:
- High TDS on salary but actual tax lower (due to deductions not reflected by employer)
- TDS at 10% on FD interest but slab rate is 5%
- Advance tax paid on estimated income that turned out to be lower
- Capital loss set-off reduced tax below TDS already deducted
- Exempt income taxed by payer (e.g., NRE interest TDS — though NRE interest is exempt)
2. How to Claim a Refund
Refunds are automatically processed by CPC when the filed ITR shows excess TDS/advance tax. No separate claim is needed for most cases. For older unclaimed refunds (beyond normal assessment), file Form 30 on the IT Portal to request the refund specifically. Ensure your bank account is:
- Pre-validated on the IT Portal (linked to PAN via your bank)
- Active and correct IFSC code entered
3. Refund Timeline
| Situation | Typical Timeline |
|---|
| E-verified ITR, correct bank account | 15–45 days from processing |
| ITR selected for verification by CPC | 60–120 days |
| Scrutiny selected ITR | Refund withheld pending assessment |
| ITR-U (updated return) | No refund — ITR-U cannot claim refund |
4. Interest on Refund: Section 296
If the refund is delayed beyond 1 year from the ITR due date, interest at 0.5% per month is payable to the taxpayer under Section 296 of ITA 2025. For example, if Tax Year 2026-27 ITR due date is 31 July 2027 and refund is paid on 1 October 2028, interest accrues from 31 July 2027 to payment date — approximately 15 months at 0.5% = 7.5% interest on the refund amount.
5. Refund Failed or Wrong Account
If refund credit fails (wrong account number, closed account), it is returned to IT Department. The taxpayer must login to IT Portal, go to "My Account" → "Refund Re-issue Request" and update the correct bank account. Submit the request and the refund is re-processed. Common issue: old bank account linked to PAN that is now closed.
6. Refund Set-Off Against Demands
Under Section 297, if there are outstanding tax demands for other years, the IT Department may set off the refund against those demands before crediting the balance. You will receive an intimation of the set-off. If you dispute the outstanding demand, file a response before the refund is adjusted.
7. Why TaxClue
Delayed refunds, failed credits, and demand set-offs are common issues. TaxClue tracks refund status, follows up with IT Department, and handles refund re-issue requests. Contact us under ITA 2025.
Disclaimer
This article is for general informational and educational purposes only. It does not constitute legal, financial, or professional tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any decisions. TaxClue Consultech Pvt Ltd accepts no liability. All case studies and examples in this article are illustrative only and do not represent actual persons or transactions.
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❓ Frequently Asked Questions
When do I get an income tax refund?
An income tax refund arises when your total tax paid (TDS + advance tax + self-assessment tax) exceeds your actual tax liability for the year. It is automatically computed when CPC processes your ITR. No separate claim is needed. To receive the refund, your bank account must be pre-validated on the Income Tax Portal (linked to your PAN through your bank's net banking). The typical timeline is 15-45 days after ITR processing.
How do I track my income tax refund?
Check refund status on the NSDL TIN portal (tin.nsdl.com) under 'Know Your Refund Status' using PAN and assessment year. You can also check on incometax.gov.in under 'My Account' → 'Refund/Demand Status.' The refund status shows: issued, in transit, credited, or failed. SMS and email notifications are also sent to your registered mobile and email when the refund is processed.
What is the interest on delayed income tax refund?
Under Section 296 of ITA 2025, if the income tax refund is not paid within 1 year from the ITR due date, the government must pay interest at 0.5% per month (or part month) on the refund amount from the due date to the actual payment date. For Tax Year 2026-27 (ITR due 31 July 2027), if refund is paid after 31 July 2028, interest from 31 July 2027 accrues — at 0.5% per month.
What should I do if my refund fails?
If the refund credit fails (wrong IFSC code, closed bank account, account number error), it is returned to the IT Department. Login to incometax.gov.in, go to 'My Account' → 'Refund Re-issue Request.' Select the assessment year, confirm your PAN, and enter the correct validated bank account details. Submit the request. The IT Department re-processes the refund within 15-30 days. Pre-validate all bank accounts on the portal before filing ITR.
Can my refund be adjusted against an old demand?
Yes. Under Section 297 of ITA 2025, the IT Department can set off a pending refund against outstanding tax demands for other years before crediting the balance. You will receive an intimation showing the adjustment. If you dispute the outstanding demand — file a response to the demand notice, apply for a stay, or file a rectification/appeal before the refund is set off. Once set off, recovering it requires going through the refund or appeal process for the set-off amount.
