TDS Deducted but Income Below Tax Limit? How Returning Indians Can Claim Old Refunds

Banks may deduct tax from interest even when an account holder’s final Indian tax bill is zero. A taxpayer must usually file an Indian income-tax return, report the interest, claim the tax credit and request the refund.

That process affects pensioners, senior citizens, low-income depositors, returning Indians and non-resident Indians earning interest from Indian deposits. The correct filing route depends on the Assessment Year and whether a return was filed earlier.

Tax deducted at source is only a collection mechanism. It is not the final liability. A bank may deduct tax using the information available to it, while the taxpayer’s final position depends on total income, exemptions, deductions and other taxes.

Suppose a bank withheld ₹12,000 from fixed-deposit interest, but the taxpayer’s final liability was nil. The taxpayer can claim the ₹12,000 after reporting the interest and matching the tax credit in the return.

The filing window is decisive. Missing the regular deadline does not immediately end a refund claim, but using the wrong return can do so.

The return type changes as the claim gets older

A regular return can claim a refund when filed by the original due date. A belated return can still produce a refund after that date. A revised return corrects an already-filed return, while an updated return, or ITR-U, cannot create or increase a refund.

The distinction is important for a taxpayer who never filed. A revised return is unavailable without an earlier return, and ITR-U is not a substitute for a condonation request when the result would be a refund.

AY 2026-27 claims still have ordinary filing deadlines

Income earned from April 1, 2025 to March 31, 2026 belongs to Financial Year 2025-26 and Assessment Year 2026-27. For most individuals without business or professional income requiring another due date, including people filing ITR-1 or ITR-2, the regular deadline is July 31, 2026.

A separate August 31, 2026 deadline applies to specified non-audit business cases and certain other categories. A person whose only income is bank interest would ordinarily fall under the July 31 deadline.

Missed it? The belated-return deadline is December 31, 2026, or the date of completion of the assessment, whichever comes earlier. Section 234F may impose a late-filing fee of ₹1,000 when total income does not exceed ₹5 lakh, or ₹5,000 in other cases.

A taxpayer who filed an earlier return can revise it until March 31, 2027, or completion of the assessment, whichever comes earlier. For revisions filed from January 1 through March 31, 2027, section 234I applies a fee of ₹1,000 where total income does not exceed ₹5 lakh and ₹5,000 where total income exceeds ₹5 lakh.

The revised-return route is only for an existing filer. A complete non-filer cannot use it.

ITR-U has a long window but cannot produce a refund

An updated return can generally be filed within 48 months from the end of the relevant Assessment Year, even when no original return was filed. It cannot be used if it results in a refund, increases an existing refund, reduces previously disclosed tax liability or reports total income as a loss.

That restriction prevents a taxpayer from using ITR-U merely to recover tax withheld by a bank. ITR-U is principally designed for omitted income where additional tax becomes payable. Depending on the filing period, additional income tax may equal 25%, 50%, 60% or 70% of the applicable tax and interest.

The general outer dates illustrate the limitation period, not a refund route:

Older refunds require condonation before the return

Once the regular and belated-return periods have expired, a taxpayer who never filed must ordinarily apply under section 119(2)(b) for condonation of delay. The application must explain the reasonable cause for the delay and show genuine hardship if the refund is denied.

Approval comes first. The taxpayer then files the return under the permission and procedure specified by the department. Such a return falls under section 139(9A) and may be identified in the return utility as a return filed after condonation under section 119(2)(b).

CBDT Circular No. 11/2024 generally limits condonation applications for refund or loss claims to five years from the end of the relevant Assessment Year. That five-year rule applies to applications filed on or after October 1, 2024. The competent authority should, as far as possible, dispose of an application within six months from the end of the month in which it is received.

As of July 29, 2026, AY 2021-22, linked to FY 2020-21, is ordinarily the oldest year still open. Its condonation deadline is March 31, 2027. The normal five-year period for AY 2020-21 ended on March 31, 2026.

The deadline applies to the condonation application, not merely to the later return. Permission is not automatic because income fell below the taxable limit.

Evidence must establish both delay and a genuine refund

A condonation request should show a reasonable cause, genuine hardship, a genuine refund claim, and that the income is not taxable in another person’s hands. It should also establish that the refund arose from excess TDS, TCS, advance tax or self-assessment tax.

Possible explanations include serious illness, advanced age, lack of access to tax records, prolonged absence from India, incorrect professional advice, documented technical problems or a genuine lack of knowledge about the tax credit. A bare statement that the taxpayer “did not know the law” may not always suffice without supporting circumstances.

The authority may ask the jurisdictional Assessing Officer to verify the return, bank records and tax claim. A useful file should contain the following:

• PAN and contact details;
• the relevant Assessment Year;
• total-income and tax-liability calculations;
• Form 26AS;
• the Annual Information Statement and Taxpayer Information Summary;
• Form 16A issued by the bank;
• a bank interest certificate and relevant bank statements;
• the proposed income-tax return;
• details of the refund claimed; and
• a year-specific explanation with evidence supporting illness, absence, age, technical difficulty or another stated cause.

The taxpayer should reconcile Form 26AS with the credit claimed in the return. An incorrect PAN, missing tax credit or an uncorrected bank statement can delay or defeat the claim.

Residents and NRIs calculate the refund differently

A resident individual must report savings-account and fixed-deposit interest under “Income from Other Sources,” even when the bank has already withheld tax. The final calculation combines income from all sources, the selected tax regime, eligible deductions, age-based provisions, tax already deducted and any other tax payable.

Pensioners and senior citizens should therefore combine interest with pension, rent, capital gains and other taxable income before assuming that all tax withheld will return. For future years, an eligible resident may submit Form 15G or Form 15H to request non-deduction, but eligibility must be checked before filing either form.

Non-resident Indians often face withholding on interest from Non-Resident Ordinary, or NRO, accounts. The bank’s rate may exceed the final Indian liability after applying the Income-tax Act and, where legally available, a Double Taxation Avoidance Agreement.

An NRI claiming a refund must report Indian residential status, NRO interest and other Indian-source income, special tax rates, available DTAA relief, Form 26AS credits and any Indian capital gains, rent or other income. NRIs cannot use ITR-1 or ITR-4; an NRI without business or professional income would generally use ITR-2, while one with such income would generally use ITR-3.

Qualifying interest from an NRE account may be exempt while the account holder continues to meet statutory non-resident conditions. Account classification alone is not conclusive. Residential status, the deposit’s nature and banking compliance must be examined for the relevant year.

An NRI seeking several years of refunds needs a separate condonation request and return for each Assessment Year.

A ₹18,000 example shows the route for a missed year

Consider a retired resident who earned bank interest during FY 2020-21. The bank withheld ₹18,000, the final liability was nil after deductions, and no return was filed for AY 2021-22.

That taxpayer cannot now file a regular, belated or revised return. A revised return is unavailable because no earlier return exists. ITR-U is also barred because the proposed return would create a refund.

The taxpayer should submit a section 119(2)(b) condonation petition by March 31, 2027. If approved, the person can file the return under the order and claim the ₹18,000 refund. Interest on that belated refund would ordinarily not be available.

The practical sequence is therefore short: use the regular return by July 31, 2026 for an ordinary AY 2026-27 bank-interest case; use the belated window through December 31, 2026 if needed; revise an existing return by March 31, 2027; and use condonation for older refund years within the five-year limit.

A taxpayer should preserve the bank’s Form 16A, interest certificate, Form 26AS and supporting delay evidence before filing. For a claim tied to FY 2020-21, March 31, 2027 remains the ordinary outer date for the condonation application.

This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional or CPA about your specific situation.