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FinFIRST Blogs
Often you may notice that a higher-than-usual tax amount gets deducted from your taxable income. There is nothing to worry, as this is a common practice that after deducting more in a particular month the government refunds you the excess amount that got deducted as income tax refund. You also earn interest on such refunds.
Receiving previous year's income tax refund in the current year is always welcome. But it can also have further tax implications. Wondering how? Read on to find out.
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Taxability of income tax refund
Your tax refunds are exempted from liability since that amount was already considered in the tax calculations during the previous year.
However, under Section 244A of the Income Tax Act, the IT department must pay an interest of 0.5% of the refund amount per month or part thereof. This means your income tax refund is eligible for interest income from the first day of the assessment year.
Since filing and processing are time-consuming, you inevitably earn interest on your income tax refund.
The interest earned on it is considered an "income" and attracts tax. This is why you must report the interest income earned on the refund amount under 'Income from Other Sources.'
Why not pay the exact income tax ?
Things would have been simpler if your tax amount deducted was equal to your actual tax during the year. However, this is not possible in cases such as the following:
· Excess tax at source (TDS) is deducted from salary because you did not declare deductible investments and tax exemptions on time
· TDS is deducted, but the taxpayer's income is below the taxable amount
· Excess advance tax paid
In conclusion
If you are compiling your income and investment documents for the upcoming ITR filing, you can use your IDFC FIRST Bank Savings Account to pay your income tax in a few easy steps. On the other hand, if you are expecting a tax refund, make sure you link your IDFC FIRST Bank Savings Account correctly while filing your ITR.
Disclaimer
The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.
The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirst.bank.in for latest updates.
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