The Union budget has proposed to extend the period of withholding of income tax refund to 60 days from the date of reassessment. With no additional interest available if refund is withheld, tax experts contend the proposal is prejudicial to the assessee and needs review.
At present, section 245 of the Income Tax Act empowers the assessing officer to adjust the refund (or part of it) against any tax demand that is outstanding from the taxpayer. Further, when refund becomes due to a person, but the assessment or reassessment is pending, then the assessing officer with the approval of the principal commissioner or the commissioner of income tax, can withhold the refund till the date of completion of assessment or reassessment.
However, no additional interest on refund under section 244A of the Income Tax Act is payable to the assessee for the period beginning from the date on which such refund is withheld and ending with the date on which assessment/reassessment is made.
“The period of withholding the refund up to the date of assessment is inadequate as the demand itself becomes due after 30 days of the date of assessment. Hence, the period of withholding of refund is proposed to be extended up to sixty days from the date on which assessment or reassessment is made,” the explanatory memorandum to the Finance Bill 2024 said.
The amendment will come into effect from October 1.
According to tax advocate Narayan Jain, extending the period of withholding of refund up to 60 days under section 245(2) is not desirable. Taxpayers will be prevented from additional interest under section 244A(1A) of 3 per cent. “The amendment needs to be reviewed,” said Jain.
CA Ashish Agarwal said that the provision of non payment of interest on tax refund withheld till assessment leaves the assessee prejudiced.