Tax Return vs Tax Refund
Tax return and tax refund are two of the most commonly used terms in almost all tax systems. Tax is a financial charge imposed upon an individual or a legal entity by a state or a functional equivalent of a state, such that, failure to pay is punishable by law. Taxes consist of direct taxes or indirect taxes. Direct taxes are those paid directly by the taxpayers themselves, on their income or gains for a particular taxable period (example: income tax). Indirect taxes are those include one or more intermediaries who collect taxes on behalf of the tax authority (example: value added tax). Both direct and indirect taxes require the persons effected to make periodical payments to the relevant tax authority and submit a ‘tax return’ at the end of the taxable period, which is normally specified by the law. Tax return includes, technical aspects of financial performance and position which will not be discussed in this article.
Tax return would include all the required information requested by the tax authority, to assess the relevant tax liability. Tax returns are issued periodically by the state, and, normally come in standard formats in most of the tax systems. Non submission or submission of false information in the tax return to evade taxes might result in criminal prosecution under the prevailing law in most countries. In this context, the tax return is an important document in the process of taxation and revenue collection of a state. Further more, the tax return is the document, which assesses the ultimate tax liability of a person. If the periodical tax installments paid by the tax payer, is less than the final tax payable as per the tax return, the tax payer will have to make a further payment equivalent to the balance unpaid. On the other hand, if the tax installments paid is more than the tax payable as per the return, the tax payer can claim the over payment in the form of a ‘Tax refund’.
Tax refund is a result of the actual tax payable as per the tax return, being less than the payments made for the particular taxable period. Since, the tax payer has overpaid taxes than he is actually liable to pay, the state is bound to refund the excess under the law. In most of the instances, the excess (tax refund) will be paid to the tax payer in the form of a cash payment, or in some tax systems, the tax payer has the option to carry forward the refund in the form of a tax credit, and claim it from the tax payable in the succeeding taxable periods.
What is the difference between Tax Return and Tax Refund?
Tax return is complimentary to tax refund, as such, the tax payer should always furnish a valid tax return in order to claim his tax refund. The tax refunds are allowed after a comprehensive assessment of the information provided in the tax return. Therefore, the validity of the information provided in the return would impact on the payment or non payment of the tax refund.
The tax payers would always want to minimize the tax payable through the tax return, and claim a refund, but in contrast, the tax authorities would want to maximize their tax revenue. Therefore, the authenticity or validity of the information provided in the tax return plays a vital role in deciding whether the tax payer gets a tax refund or not.
In conclusion, a well supported and honestly furnished tax return is for the betterment of the society and for the whole nation, notwithstanding, the tax payer gets the refund.