ITR: Got excess income tax refund? Know possible reasons and what you should do

The last date to file Income Tax Return (ITR) for the financial year 2022-23 (AY 2023-24) was July 31, 2023. Now, the Income Tax Department is busy processing the returns filed by the taxpayers. Once the returns are scrutinised the refunds will be processed. Those taxpayers who have paid more tax than the due amount are eligible to get a refund.

Sometimes the authorities may end up processing an excess refund. It may even happen that more refund was due at an earlier stage, which was reduced at a later stage. In such a situation, what can a taxpayer do? Here is a simple guide on what to do in case you get an excess income tax refund.

Possible reasons for getting an excess income tax refund

Calculation errors: The tax authorities can deposit excess tax refund in a taxpayer's account if the ITR has inflated or incorrect calculations.

Error in processing: The tax department can make errors in processing ITR. For example, it may issue a refund where none is due.

Rechecking of financials under regular assessment: During the regular assessment by Income Tax officials the refund amount may become lesser than what was communicated at the time of intimation. If this happens, excess refund, along with interest, is recovered from the taxpayer.

What can a taxpayer do if they receive an excess income tax refund?

The Income Tax Department may send a notice to the taxpayer asking them to pay back the excess amount with interest. If excess refund has been computed and the authorities have not yet issued a notice, the individual may file a revised tax return and pay back the excess. This provision will not be available if the tax department sends a notice. Penal interest will be levied even if no notice is served.

If the department has sent a notice for recovering dues, the taxpayer has to pay back the money. Apart from the excess refund, interest will be charged at 0.5 per cent per month. The taxpayer has to pay back the due money at the e-filing portal of the Income Tax Department.  

What happens if the excess refund is not paid?

The Income Tax Department may treat the matter as misreporting of income and levy penalty at 200 per cent of tax liability under Section 270A of I-T Act, 1961. It may even initiate legal proceedings against the taxpayer in certain cases. Individuals need to pay back any excess refund as soon as possible to avoid penalties.