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The other day my brother, a software engineer was fretting and fuming and was all in spoiled mood. He was cursing the accountant of his company, Income tax rules and the Income Tax Department, our economy and what not including the World Bank. At the dining table I asked him the reason for his being upset. When he narrated what his company’s accountant had done to him, I told it was a boon in disguise. My brother gave a look as if I had gone crazy. Not caring about his remarks I reaffirmed that, intentionally or unintentionally the accountant of the company helped him by deducting more TDS from his salary.

Yes. If excess tax is deducted from your salary there is no reason to worry instead you should be happy that you would be earning interest on the tax refunds. More the refund of tax the more you earn. Unbelievable…. isn't it ?

Tax refunds are receipts from the Income Tax Department when the Tax paid by a person exceeds the amount of Tax payable as per the Rules. In the case of Salaried people it may so happen that the TDS is in excess of the amount payable by him either due to miscalculations or an extra deduction not informed to the employer. Such a person has to file His Return to claim this benefit. He is also entitled to Interest on the excess payment. 

Under Section 244A Income Tax Act, an assessee is entitled to receive, in addition to the refund simple interest on the refund calculated in the following manner:

1. Where the refund is out of any tax deducted at source/tax collected at source or advance tax paid during the financial year, interest will be paid at the rate of 1% for every month from the period starting from 1^st day of April of the assessment year to the date on which the refund is granted.
   
2. In other cases interest shall be paid @1% per month for every month or part of a month for the period commencing from the date of payment of tax or penalty to the date on which refund is granted.

However no interest shall be payable if the amount of refund is less than 10% of the tax determined u/s143 (1).

Imagine the same excess amount what you have paid to Income Tax Department is invested in Banks Fixed Deposit. What you would have earned is maximum of 10% for three year term. Had you invested in the growth/debt schemes of any mutual fund probably you would have got more but with a risk tag. Even provident fund schemes would not give you more than 11%.

In this economy of falling and unstablised interest rates what else could be better than earning 12% per month without any risk? So catch up…. Pay more Income Tax and earn more income. And forget about paying an unhealthy tip to the Income Tax clerk who comes to deliver your refund order at home.

C Sekhar

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