Set off and withholding of Income Tax refunds in certain cases – Budget 2023
Section 241A of the Act deals with withholding of refund in certain cases. As per the section, where a refund becomes due to an assessee under sub-section (1) of section 143 and notice for assessment is issued to him under sub-section (2) of section 143, the Assessing Officer (AO) may withhold such refund till the date of such assessment being made, if he is of the opinion that the grant of refund is likely to adversely affect the revenue. Such withholding can be done after recording the reasons for doing so and with the prior approval of the Principal Commissioner or Commissioner, and applicable to assessment years on or after 2017-18.
2. Section 245 of the Act deals with set off of refunds against tax remaining payable. It provides that where refund is found to be due to any person under any provisions of the Act, the AO or other income-tax authorities mentioned in the section, may, in lieu of payment, set off part or whole of the refund against any sum remaining payable by such person, after giving him an intimation in writing regarding the proposed action.
3. There is an overlap between the two provisions. Therefore, it is proposed to integrate the two sections by substituting section 245, so as to provide that where under any of the provisions of this Act, a refund is due to any person, the Assessing Officer or Commissioner or Principal Commissioner or Chief Commissioner or Principal Chief Commissioner, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against any sum remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this section.
4. It is also proposed to provide that where a part of the refund has been set off under subsection (1) or where no amount is set off, and refund becomes due to a person, then, the Assessing Officer, having regard to the fact that proceedings of assessment or reassessment are pending in such case and grant of refund is likely to adversely affect the revenue, and for reasons to be recorded in writing and with the previous approval of the Principal Commissioner or Commissioner, may withhold the refund till the date on which such assessment or reassessment is made.
5. It is also proposed to amend section 241A of the Act to make the provisions of that section inapplicable from 1st April, 2023.
6. Further, as the amendments proposed under section 245 would have an impact on cases referred to in sub-section (1A) of section 244A, i.e., where refund due to the assessee is required to be withheld by the AO under sub-section (2) of the proposed section till the date of the making assessment or reassessment, it is proposed to amend sub-section (1A) of section 244A by inserting a proviso that in case of an assessee where proceedings for assessment or reassessment are pending, the additional interest shall not be payable to the assessee under this sub-section, for the period beginning from the date on which such refund is withheld by the Assessing Officer, in accordance with and subject to provisions of sub-section (2) of section 245, till the date on which the assessment or reassessment pending in such case, is made.
7. However, the proposed amendment shall not impact the existing position with regard to all other types of interest, except additional interest under sub-section (1A) of section 244A, payable to the assessee as required under the Act.
8. These amendments will take effect from the 1st day of April, 2023.
[Clauses 92, 93 & 94]
Extract of relevant clause of Finance Bill 2023
Clause 92 of the Bill seeks to amend section 241A of the Income-tax Act relating to withholding of refund in certain cases.
It is proposed to insert a new proviso in the said section to provide that the provisions thereof shall not apply from 1st April, 2023.
This amendment will take effect from 1st April, 2023.
Clause 93 of the Bill seeks to amend section 244A of the Income-tax Act relating to interest on refunds.
It is proposed to amend clause (a) of sub-section (1) of the said section to insert a proviso to provide that where refund arises as a result of an order passed by the Assessing Officer in consequence of an application made by the assessee under sub-section (20) of section 155, such interest shall be calculated at the rate of one-half per cent. for every month or part of a month comprised in the period from the date of such application to the date on which the refund is granted.
This amendment will take effect from 1st October, 2023.
It is further proposed to insert a proviso to sub-section (1A) of the said section to provide that where proceedings for assessment or reassessment are pending in respect of an assessee, in computing the period for determining the additional interest payable to such assessee under this sub-section, the period beginning from the date on which such refund is withheld by the Assessing Officer in accordance with and subject to provisions of subsection (2) of section 245 and ending with the date on which such assessment or reassessment is made shall be excluded.
This amendment will take effect from 1st April, 2023.
Clause 94 of the Bill seeks to substitute section 245 of the Income-tax Act with a new section relating to set off and withholding of refunds in certain cases.
Sub-section (1) of the proposed section seeks to provide that where under any of the provisions of this Act, a refund becomes due or is found to be due to any person, the Assessing Officer or Commissioner or Principal Commissioner or Chief Commissioner or Principal Chief Commissioner, as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this subsection.
Sub-section (2) of the proposed section seeks to provide that where a part of the refund has been set off as per sub-section (1) or where no amount is set off, and refund becomes due to a person, then, the Assessing Officer, having regard to the fact that proceedings of assessment or reassessment are pending in such case and grant of refund is likely to adversely affect the revenue, and for reasons to be recorded in writing and with the previous approval of the Principal Commissioner or Commissioner, may withhold the refund till the date of such assessment or reassessment.
This amendment will take effect from 1st April, 2023.
Extract of Relevant Amendment Proposed by Finance Bill, 2023
92. Amendment of section 241A.
In section 241A of the Income-tax Act, the following proviso shall be inserted, namely:–
“Provided that the provisions of this section shall not apply from the 1st day of April, 2023.”.
93. Amendment of section 244A.
In section 244A of the Income-tax Act,–
(a) in sub-section (1), in clause (a), after sub-clause (ii), the following proviso shall be inserted with effect from the 1st day of October, 2023, namely:–
“Provided that where refund arises as a result of an order passed by the Assessing Officer in consequence of an application made by the assessee under sub-section (20) of section 155, such interest shall be calculated at the rate of one-half per cent. for every month or part of a month comprised in the period from the date of such application to the date on which the refund is granted;”;
(b) in sub-section (1A), the following proviso shall be inserted, namely:–
“Provided that where proceedings for assessment or reassessment are pending in respect of an assessee, in computing the period for determining the additional interest payable to such assessee under this sub-section, the period beginning from the date on which such refund is withheld by the Assessing Officer in accordance with and subject to provisions of sub-section (2) of section 245 and ending with the date on which such assessment or reassessment is made, shall be excluded.”.
94. Substitution of new section for section 245.
For section 245 of the Income-tax Act, the following section shall be substituted, namely:–
Set off and withholding of refunds in certain cases.
“245. (1) Where under any of the provisions of this Act, a refund becomes due or is found to be due to any person, the Assessing Officer or Commissioner or Principal Commissioner or Chief Commissioner or Principal Chief Commissioner, as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this sub-section.
(2) Where a part of the refund is set off under the provisions of sub-section (1), or where no such amount is set off, and refund becomes due to a person, and the Assessing Officer, having regard to the fact that proceedings for assessment or reassessment are pending in the case of such person, is of the opinion that the grant of refund is likely to adversely affect the revenue, he may, for reasons to be recorded in writing and with the previous approval of the Principal Commissioner or the Commissioner, as the case may be, withhold the refund up to the date on which such assessment or reassessment is made.”.
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