Many taxpayers calculate the refund they expect while filing their Income Tax Return (ITR) based on the tax paid and deductions claimed during the financial year. However, the refund amount reflected in the return is only a self-assessment and is not the final amount that the Income Tax Department is required to pay.
Before issuing a refund, the department processes the return under Section 143(1) of the Income-tax Act and verifies the details reported by the taxpayer with information available in its records. If it finds discrepancies or makes adjustments permitted under the law, the refund credited to the taxpayer’s bank account may be lower than the amount originally claimed.
So, why does this happen, and what should taxpayers do if the refund they receive is less than expected?
Why can the refund amount change?
After an ITR is filed, it is processed by the Centralised Processing Centre (CPC). During this stage, the department verifies the information reported in the return against tax records available with it, including Form 26AS, the Annual Information Statement (AIS), the Taxpayer Information Summary (TIS) and tax payment records.
The department also checks whether the tax deducted at source (TDS) claimed by the taxpayer matches the TDS reported by employers, banks and other deductors.
Section 143(1) permits the department to make certain adjustments while processing the return, including correcting arithmetical errors, addressing incorrect claims that are apparent from the information furnished in the return and computing tax, interest and the final refund accordingly.
As a result, the refund determined after processing may differ from the amount claimed by the taxpayer while filing the return.
What are the common reasons for receiving a partial refund?
According to Cleartax, one of the most common reasons is a mismatch in tax credits. For example, if the claimed in the return is higher than the credit available in Form 26AS, the excess credit may not be allowed while processing the return.
The refund may also be reduced if taxable income has not been reported correctly. Before filing, taxpayers are advised to reconcile their income with the details available in the AIS and TIS to minimise discrepancies.
In some cases, incorrect claims that are apparent from the return itself or errors in tax calculations may also lead to adjustments during processing. Interest payable under the provisions of the Income-tax Act, wherever applicable, is also computed while determining the final tax liability.
Another reason could be an outstanding tax demand from an earlier assessment year. Under Section 245 of the Income-tax Act, the department may adjust a taxpayer’s refund against an existing demand after following the prescribed procedure and providing an opportunity to respond.
How can taxpayers find out why their refund was reduced?
Once the return is processed, the Income Tax Department issues an Intimation under Section 143(1) through the e-filing portal and sends it to the taxpayer’s registered email address.
The intimation contains a comparison between the income, deductions and tax credits reported by the taxpayer and those computed by the department. It also specifies whether the return has resulted in a refund, no demand or a tax demand, along with details of any adjustments made during processing.
Taxpayers who receive a lower refund should carefully review this intimation along with Form 26AS, AIS and TIS to identify the reason for the difference.
What should you do if you disagree with the refund amount?
If taxpayers believe the refund has been reduced because of an apparent error, they should first verify the details in the Section 143(1) intimation against the information available in their tax records.
As per Cleartax, if a mistake is identified that is apparent from the record, they can file a rectification request through the Income Tax Department’s e-filing portal. Where the refund has been adjusted against an outstanding tax demand, taxpayers can also respond to the demand through the portal, if applicable.
To avoid such situations, the Income Tax Department advises taxpayers to reconcile Form 26AS, AIS and TIS before filing their returns, ensure that all taxable income has been reported correctly and verify that TDS and other tax credits have been accurately claimed. Doing so can help reduce the likelihood of adjustments during processing and ensure that the final refund closely matches the amount claimed in the ITR.