Income Tax Refund Under Income Tax Act 2025: Section 295 Guide

1. How a Tax Refund Arises

A tax refund is the excess of taxes paid over actual tax liability for a Tax Year:

• TDS: Employer deducts more TDS than needed (common in early months of year)
• Advance tax: Paid in instalments based on estimated income which was higher than actual
• TDS on FD interest: Bank deducts 10% TDS but actual slab rate is lower
• TCS credits: TCS collected on foreign remittance, vehicle purchase credited against lower actual liability

2. How to Claim a Refund

1. File your ITR on the Income Tax Portal — ensure all TDS/advance tax credits in Form 26AS are captured
2. Verify your ITR using Aadhaar OTP, net banking, or DSC within 30 days of filing
3. Ensure bank account is pre-validated and PAN-linked on the IT Portal
4. Refund is credited directly to the bank account after processing

3. Interest on Delayed Refund: Section 296

If the IT Department delays your refund beyond the normal processing period, interest at 0.5% per month is paid on the refund amount:

• For refunds arising from TDS: interest from 1 April of assessment year (if ITR filed before due date)
• For refunds arising from late ITR filing: interest from date of ITR filing
• No minimum interest if refund is processed within 3 months of filing

4. Why Refunds Get Delayed

• Bank account not pre-validated or PAN not linked to bank account
• Mismatch between ITR income and AIS data — pending verification
• ITR not e-verified within 30 days of filing
• Outstanding demand from previous years — refund adjusted against old demand (Section 297)
• ITR selected for scrutiny assessment

5. Refund Adjustment (Section 297)

The IT Department can adjust your current year refund against any outstanding tax demand from previous years without prior notice. However, the taxpayer must be informed after adjustment. If you believe the old demand is wrong, file a rectification or an appeal for the disputed demand before the adjustment happens — once adjusted, recovering the amount becomes more complex.

6. Why TaxClue

Maximising refunds and avoiding delays requires correct ITR filing, complete TDS credit capture, and bank account validation. TaxClue ensures all TDS/advance tax credits are properly claimed in your ITR for fastest possible refunds. Contact us for Tax Year 2026-27 ITR filing and refund tracking.