TDS Refund - How to Claim TDS Refund?

Tax Deducted at Source (TDS) is a form of advance tax collection where the payer deducts a specified percentage of tax before making certain payments such as salary, interest, rent, or professional fees. Sometimes, the total TDS deducted during the financial year may exceed the taxpayer’s actual tax liability. In such cases, the excess tax paid can be claimed as a TDS refund by filing an Income Tax Return (ITR).

Key Takeaways

• TDS Refund arises when total TDS deducted is more than actual tax liability.
• Claim refund only by filing your ITR within the due date.
• Provide correct bank details in ITR for smooth processing.
• Refund status can be tracked on the Income Tax portal.

What is TDS Refund?

A TDS refund occurs when the Tax Deducted at Source (TDS) during a financial year is higher than your actual income tax liability. In such cases, the excess tax paid can be claimed back from the Income Tax Department of India by filing your Income Tax Return (ITR). 

This commonly happens when incorrect tax calculations, additional deductions, or lower taxable income reduce the final tax payable. Once your ITR is processed, the tax department refunds the excess amount directly to your pre-validated bank account.

When Are You Eligible for TDS Refund?

It is important to file an Income Tax Return (ITR) within the due date to claim a refund for the excess TDS deducted. The following are the cases where a TDS refund arises

1. When your employer deducts more than the income tax payable

• In case your taxable income is below the basic exemption limit, you can avoid TDS deduction from your salary. 
• If the actual tax payable is less than the TDS, you must file Income Tax Return (ITR) to claim TDS refund.
• While filing the ITR online, you need to provide the details of a bank account and IFSC code. The Income Tax (IT) department requires these details to give a TDS refund.

2. TDS deducted on fixed deposit

• When your taxable income is less than basic exemption limit, submit a declaration in Form 15G at the beginning of the FY to your bank to notify them that you don’t have a taxable income. Hence, no tax (TDS) would be deducted on your interest income.
• If the bank deducts tax (TDS) on your interest income in spite of you submitting the Form 15G declaration, you can claim the refund by filing your ITR.

3. For senior citizens with FD accounts

• Senior citizens of age 60 or above are exempt from tax deductions (TDS) on interest earned from deposits with banks. However, the exemption is applicable if interest on deposits from each bank is up to Rs.50,000 annually.
• In case your interest income is more than the threshold limit stated above, but your total income is below the basic exemption limit (after section 80 deductions), you can submit Form 15H to your bank at the beginning of the financial year to notify them that you don’t have a taxable income.
• If the bank still deducts tax on your interest income from your FD, you can claim a refund by filing your ITR.

How to Claim TDS Refund Online?

Taxpayers can claim a refund for the excess TDS deducted while filing ITR for that particular financial year. Once the ITR is filed, it is important to e-verify the return. The ITR will not be processed if e-verification is pending. Any refund due, will be credited only after the ITR is processed by the ITD.

It is also important to enter correct bank account details while filing ITR, as the refund will be credited to that particular bank account. 

How to Check TDS Refund Status?

TDS refund status can be checked online through the Income Tax Portal. Also, TDS refund status can also be checked through NSDL e-PAN Protean portal by entering PAN and assessment year. 

Income Tax Refund Status and Their Meaning

Interest on TDS Refund

If the IT department is late in paying the TDS refund as applicable, then they must pay an interest of 0.5% for every month or part of the month (i.e. 6% per annum). This provision comes under Section 244A of the Income Tax Act. This interest accrues from the first month of the Assessment Year when an ITR is filed within the due date and from the date of filing of the returns in any other case. 

TDS Refund Example

Mr. Raj earned income from the following sources during FY 2024-25:

• Salary Income: Rs 9 Lakh (TDS deducted by employer: Rs 96,000 under old tax regime)
• Bank FD Interest: Rs 50,000 (TDS deducted by bank: Rs 5,000)

Step 1: Calculate Total Income

Total Income = Rs.9 Lakh + Rs.50,000 = Rs.9,50,000

Step 2: Compute Tax Liability (as per slab for FY 2024-25 under the New regime)

• Taxable Income = Rs.9.5 Lakh - Rs. 75,000 Standard deduction = Rs.8.75 Lakh
• Tax on Net taxable income Rs. 8.75 Lakh is Rs. 39,000

Step 3: Adjust with TDS Already Deducted

• Total TDS deducted = Rs. 96,000 (salary) + Rs.5,000 (FD interest) = Rs.1,01,000

Step 4: Find Refund

• Actual Tax Liability = Rs.39,000
• TDS Paid = Rs. 1,01,000
• Refund = Rs1,01,000 – Rs.39,000 = Rs. 62,000

So, Mr. Raj will receive a TDS refund of Rs. 61,000 after filing and processing his ITR.

When Is the Right Time to Claim TDS Refund?

You may have experienced TDS being deducted from various sources of income and payments such as interest on Fixed Deposits, salary, dividends, PF withdrawals, etc., throughout the year. However, the refund of TDS can be claimed and received only once in a year at the time of filing your Income Tax Return (ITR).

The refund of TDS is processed only after the submission of the ITR. While filing your return, ClearTax will calculate your total tax liability based on your various sources of income. If your actual tax liability is less than the total TDS already deducted, the difference will be treated as your refund and will be credited to you after the successful filing and processing of your ITR.