Six-Year Time Limit for Refund Applies Only to Tax Paid, Not to Payments on Exempt Income



Quick Summary
The six-year time limit for claiming a tax refund generally applies to tax that was actually paid. However, this limit may not apply to payments made on income that is exempt from tax, such as disability pensions. This distinction is important for individuals and organisations like Non-Profit Organisations and Trusts seeking refunds.

Section 237 of ITA'61 provides that - "237. If any person satisfies the 1[Assessing] Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of the excess."

The same is mirrored by Section 431 of ITA'25, which provides that -

"431. Refunds. If any person satisfies the Assessing Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any tax year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of the excess."

Tax Refund Time Limit: Paid Tax vs. Exempt Income

One must understand that as per Article 265 of the Constitution, Taxes cannot be collected without any authority of Law. In case a payment is made where no tax is payable, then the nature of the payment does not remain taxes at all. This brings us to the point that for refund of such payments, there should be no Limitation period as such as held in the case of LT. COL. NIKHIL SUBODH GAJJAR RETD Vs PRINCIPAL COMMISSIONER OF INCOME TAX AHMEDABAD 3 [2025-VIL-322-GUJ-DT]

Circular 9/2015 [F.NO.312/22/2015-OT], DATED 9-6-2015 specifies the time period for condonation of delay in filing refund claim. It states inter-alia as follows -

 

"SECTION 119 OF THE INCOME-TAX ACT, 1961 - INCOME-TAX AUTHORITIES - INSTRUCTIONS TO SUBORDINATE AUTHORITIES - CONDONATION OF DELAY IN FILING REFUND CLAIM AND CLAIM OF CARRY FORWARD LOSSES UNDER SECTION 119(2)(b) CIRCULAR 9/2015 [F.NO.312/22/2015-OT], DATED 9-6-2015

3. No condonation application for claim of refund/loss shall be entertained beyond six years from the end of the assessment year for which such application/claim is made. This limit of six years shall be applicable to all authorities having powers to condone the delay as per the above-prescribed monetary limits, including the Board. A condonation application should be disposed of within six months from the end of the month in which the application is received by the competent authority, as far as possible."

 

However, Circular No.9/2015 which prohibits entertaining an application for claim of refund/loss beyond six years from the end of relevant assessment year would not be applicable incase a petitioner is entitled to the refund of the payment made as taxes as disability pension received by the petitioner is falling under exempt income and therefore, the petitioner is not liable to pay any tax on such disability pension.

If the same analogy is applied for say Non-Profit Organisations, Trusts, etc, it means that the application of refunds has no time limit.

FAQ :

If you believe you've paid more tax than you're properly chargeable with for an assessment year, you are entitled to a refund of the excess amount.

Circular 9/2015 specifies that no condonation application for a refund claim will be entertained beyond six years from the end of the assessment year for which the claim is made.

No, the six-year limit may not apply if the payment was made on income that is exempt from tax, meaning no tax was legally due on it in the first place.

Disability pension is mentioned as an example of exempt income where the six-year limit might not apply to refund claims.

The article suggests that if the principle of exempt income applies, then Non-Profit Organisations and Trusts might also have no time limit for their refund applications.




About the Author

DESIGNATED PARTNER

Mr. Vivek Jalan is a FCA, Qualified LL.M (Constitutional Law) and LL.B. He is the Chairman of The Fiscal Affairs and Taxation Committee of The Bengal Chamber of Commerce and Industry. He is the Convenor on Indirect Taxes of the CII- Economic Affairs and Taxation Committee (ER); He is also a visiting faculty for Indirec ... Read more

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