More money received in ITR Refund? Don’t be too happy, return it immediately; If there is delay, Income Tax Notice may come with interest and penalty! Excess Income Tax Refund Return Rules

When the refund message comes to the bank account after filing Income Tax Return (ITR), every taxpayer becomes happy. However, it has been seen many times that due to technical glitches, wrong matching of TDS, wrong deduction claim or Central Processing Center (CPC) recalculation, refund gets transferred to the taxpayer’s bank account in excess of the actual entitlement. If this has happened to you too and more money has come into your account than expected or claimed, then do not make the mistake of thinking of it as a bonus and spending it.

As per Income Tax rules, the extra refund received is a ‘trust’ of the department. If you do not return it on time, you may not only have to face a legal notice (Demand Notice) from the Income Tax Department, but you may also have to pay heavy interest and penalty.

Why does excess refund get credited to the account?

There are mainly 3 major reasons for excess refund being deposited in the taxpayer’s account:

• 1. Interest under Section 244A: If the department has delayed issuing the refund, it sends it by adding interest at the rate of 0.5% per month. Many times taxpayers consider this interest as additional refund.

• 2. Mismatch of deduction and TDS data: If the system has erroneously approved higher amount due to difference in the TDS shown in the return and the data in Form 26AS/AIS.

• 3. Processing and System Error: Double payment due to technical glitch during preliminary summary assessment (Summary Assessment under Section 143(1)) by CPC.

What will happen if excess money is not returned? Strict rule of section 234D

Income Tax Act, 1961 Section 234D Strict provisions have been made regarding recovery of excess refund:

• 0.5% monthly interest payable: If in regular assessment it is found that the taxpayer has been given a refund in excess of the actual entitlement, the refund on the excess amount will be payable from the date of issue of refund till the date of completion of assessment. 0.5% per month (or part of the month) Simple Interest Will be recovered.

• Demand notice under section 156: The Income Tax Department will issue an order under Section 143(1) or Section 143(3) and issue a tax demand notice under Section 156.

• Additional interest under section 220(2): If the excess refund is not made within 30 days of receipt of the demand notice, the outstanding amount Additional penal interest at the rate of 1% per month Connecting will start.

• Threat of penalty: If the department finds that the taxpayer has obtained additional refund by knowingly giving false information, a penalty of 50% to 200% can also be imposed for under-reporting under Section 270A.

What to do if you receive additional refund? Return money in 3 easy steps

If you find that you have received more refund than required, follow these steps automatically without waiting for a notice from the Department:

• Step 1 – Check Intimation Order (143(1)): Open the Section 143(1) intimation notice sent by the department on your registered email ID. See in the ‘Computation Table’ given therein, on the basis of which calculation the department has sent the refund.

• Step 2 – File revised return or rectification:

  
  

  • If you have made any mistake at the time of filing return, then under section 139(5) Revised ITR Enter.

  • If the return was correct but CPC sent more money due to system error, then go to ‘Services’ tab on the portal. Rectification Request under Section 154 Enter.

• Step 3 – Deposit additional amount through online challan (e-Pay Tax):

  
  

  • Login to the Income Tax e-Filing portal (incometax.gov.in) and select ‘e-Pay Tax’ option.

  • If the department has sent a demand notice, then ‘Tax on Regular Assessment (Minor Head 400)’ Select.

  • If you are returning excess money by self-correction, for the relevant assessment year ‘Self-Assessment Tax (Minor Head 300)’ Or pay the additional amount through Net Banking/UPI by selecting the specified tax head.

  • After payment, save the challan receipt (Challan CIN/BSR Code) for future reference.

The excess refund is never the taxpayer’s own earnings. Therefore, as soon as you notice an excess amount in your account, get it checked by your Chartered Accountant (CA) or tax advisor and protect yourself from huge interest and legal hassles by immediately returning the excess funds to the government treasury.