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Income tax refund is a reimbursement to a taxpayer for any excessive amount paid to the federal or provincial government in Pakistan. While many taxpayers view a refund as a bonus or stroke of luck, it often represents an interest-free loan made to the government—something that can usually be avoided in most cases.
Kakakhel Law Associates is home to a team of highly experienced legal experts specializing in procuring refunds from the Income Tax Authorities. The relevant laws provide provisions for the issuance of refunds if tax has been paid in excess of the due amount or as a result of an appeal effect.
Under Section 170 of the Income Tax Ordinance 2001, taxpayers who have paid more tax than required may apply to the Commissioner for a refund. There are several situations where an excess amount is created, and taxpayers can claim refunds in these cases.
The procedure for claiming a refund is outlined in sub-section (2) of Section 170, which requires the taxpayer to submit an application on the prescribed form. This application must be verified in the prescribed manner and submitted within three (3) years from the date on which the Commissioner issued the assessment order for the tax year to which the refund application pertains, or from the date the tax was paid.
Once the Commissioner is satisfied that the tax has been overpaid, they may adjust or reduce the refund amount by offsetting it against any outstanding liabilities of the taxpayer. The remaining refund will then be paid to the taxpayer. The Commissioner is required to process the refund within sixty (60) days of the application, and if the taxpayer is aggrieved, they can challenge the decision through an appeal.
The Board has established rules to expedite the processing and automatic payment of refunds through centralized processing systems, with the date to be notified by the Board.
If the refund is not paid within three (3) months of when it becomes due, the Commissioner must pay the taxpayer additional compensation at the rate of KIBOR + 0.5% per annum for the period starting from the end of the three-month period until the refund is paid, as per Section 171.
Refunds can also become due as a result of an appeal before the Commissioner (Appeals), an appeal to the Appellate Tribunal, a reference to the High Court, or an appeal to the Supreme Court, as well as through a revision order.
The application to the Commissioner should be made using the prescribed form from Part VI of the First Schedule of the Income Tax Rules 2002.