In a move that will benefit genuine taxpayers, the income tax department has issued revised guidelines for withholding of tax refund in case of scrutiny of cases, prescribing a higher monetary threshold and clarifying on timelines. The revised instructions issued by the Directorate of Income Tax (Systems) has increased the threshold for withholding refunds to Rs 50,000 from the current limit of Rs 2,000.

Under Section 241A of the Income Tax Act, when notice has been issued under Section 143(2), the Assessing Officer can withhold the refund with approval from the Principal Commissioner of Income Tax or Commissioner of Income Tax. This can be done if the Assessing Officer is of the opinion that the grant of refund would adversely affect the revenue department.

In such cases, if the amount of refund is over Rs 2,000 and the case is under scrutiny, it will be referred by the Centralised Processing Centre (CPC) to the Assessing Officer through the Income Tax Business Application (ITBA) to take action on either to withhold or release the refund through the ITR Processing Module. However, at present, the guidelines do not specify the time limit within which the Assessing Officer has to communicate the decision.

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The revised instructions have made it clear that the time limit for submission of response from Jurisdictional Assessing Officer (JAO) to CPC will be 50 days from the date of issue of the notice u/s 143(2), or the date of processing, whichever is later.

In case of Faceless assessment, Faceless Assessing Officer (FAO) will convey the decision to JAO within 40 days from the date of issue of notice.

Further, in case where the Assessing Officer communicates that the provisions of section 241A of the Act are not invoked, CPC will release the refund within 10 days from the date of receipt of the communication.

More importantly, the instructions state that in case of non-submission of response by JAO within the time limit of 50 days, refunds due to the assessees will be released by the CPC without further notice to officer concerned.

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“This Instruction is applicable for the Returns of Income (ROls) of AY 2022-23 onwards,” it said.

Experts believe that the move will be helpful to taxpayers and comes after many writ petitions were filed on the issue.

“These instructions shall help a major portion of genuine taxpayers since the monetary limit for withholding the refunds u/s 241A of the Act stands increased from Rs 2,000 to Rs 50,000 now,” said Amit Maheshwari, Tax Partner, AKM Global.

Over the past few years, the taxpayers have been facing a lot of difficulties in obtaining their income-tax refunds and because of the same, there have been a number of Writ petitions filed by the taxpayers across the country for the purpose of not receiving back their claimed income tax refunds, he further noted.