Income tax is a financial charge levied on individual based on his earning. Failure to file tax is punishable under Income Tax laws. Taxes can be classified under two headings: One is Direct Tax and another is Indirect Tax.
Direct taxes are those which are paid by individual directly to the tax department. Indirect Tax is something collected by tax authorities such as Value Added Tax.
Tax Return and Tax Refund are often used terms in all tax systems. Now, let us understand the terms and how it differs from each other.
Tax return is a document, which helps in assessing the individual tax liability. Where all the income figures are calculated to know the tax liability of the person.
Tax return must be filed every year by each individual or Business entities declaring income and tax liability of that year. Incomes may be regular income (wages), interest, dividends, capital gains, or other profits.
In case of failure to submit tax return or providing false information in the tax return to avoid taxes may lead to criminal prosecution under the law specified by the government of country.
If the tax assessed by you for that particular year is less than the actual payable tax, the tax payer will have to make further payment of the balance amount.
If the tax paid is more than the actual tax as per the return, the tax payer can claim the over payment which is called ‘Tax refund'.
The return of excess amount by the income tax department to the tax payer is said to be Tax refund.
The tax which has been overpaid by the individual than required can be claimed to tax department, the same or additional amount will be refunded to your account directly or through cheque to your mailing address.
One can file for tax refund after they have successfully submitted tax for that particular year.