Delayed I-T refund? Be patient & watch out for notices

In the last week of August the most sought after query on ‘Google Search’ was “Why is income tax refund getting delayed?” It was a month since the July 31 deadline for filing income tax returns. As of September 5, a total of 7.52 crore refunds were filed for the current assessment year (AY 2024-25). Of these, 7.38 crore returns were verified by taxpayers, of which 6.50 crore returns were actually processed. This effectively means 12% of the verified returns are yet to be processed. 

Of course, 13.86 lakh unverified returns can be processed only on verification by taxpayers. Mind you, the statutory timeline for processing returns is December 31, 2024. In complicated cases, the same can be stretched up to December 31, 2025. Those who filed their returns before the July 31 due-date are entitled to an interest of 0.5% per month, calculated from April 2024, until the date of refund.

So why the delay?

A senior tax official recently explained to a financial daily that this year the department is sending out ‘defective income tax return’ notices, giving taxpayers an opportunity to rectify that return claims and avoid future litigations. As reflected in their name, these notices are sent out when the assessing officer believes that the return of income furnished by the assessee/taxpayer is incorrect. The notice gives the assessee a timeframe of 15 days from the date of intimation to set things right. This deadline can be extended further on the requisition by the taxpayer.

If the defect is not rectified within fifteen days or extended time, as the case may be, the return filed will be treated as ‘Invalid’, inviting the consequences of ‘return not filed’. Nevertheless, a taxpayer can still rectify it on or before the completion of the assessment, of course, subject to the taxpayer’s delay application being approved by the tax authorities.

Case study: A taxpayer received an email instructing to file his returns in ITR Form 3 instead of ITR Form 2. Here, the taxpayer is at fault for not choosing the correct ITR Form while filing his return and the refund was delayed unnecessarily. However, the department is providing an opportunity to rectify it.

Not defective but reconfirm/revise claim 

An interesting phenomenon being noticed is the department identifying a large number of of returns under the risk management process and seeking just a reconfirmation of the refund sought, deductions made or omissions, from the taxpayer. To this, a taxpayer can:

1. reiterate that  the claim of refund is correct to the best of his knowledge and belief,

→or

2. file revised return of income correcting the refund claim

This can be done logging into the income tax e-filing portal and making the declaration under the tab Pending Actions > Worklist.

In this case, unlike in the “defective return” intimation, the assessee is given at timeline of 30 days to revert, with either reaffirming his/her claim or filing a revised return after thoroughly checking Form 26AS, Annual Information Statement (AIS) and Taxpayer Information Summary (TIS), as the case maybe. 

Case study: A taxpayer was instructed to confirm his tax refund claim of a little more than Rs. 2 lakh or rectify his tax return by filing a revised return with the correct tax refund. 

Though the tax refund was delayed by a month or so, it is a very good step to avoid unnecessary tax litigations down the years. If taxpayers still claim the wrong refunds after being provided one more opportunity and then are caught, then the taxpayer should be ready to face applicable actions. 

Other reasons for delay

General reasons for delaying in processing of returns and tax refunds can be put down to ensuring compliance and accuracy. The department seek more details from the taxpayers or point out mismatched calculations. It may be a case of wrong bank details or failure to validate at least one bank account for refund purpose.There may be discrepancies in Form 26AS. ITR Forms 2 and 3 are seen to be more complex than ITR Forms 1 and 4.

Under no circumstances can taxpayers afford to ignore emails or SMS from the income tax department. Such acts would only worsen his/her case. The assessee needs to check its authenticity at https://tinyurl.com/yhw9w4ww, patiently read the notice and finally take the corrective measures with appropriate response and documentary evidence, within the prescribed time. If needed, s/he can apply for an extension of time. If the situation warrants, s/he can rope in a tax professional’s advice to attend to the issues at hand on a priority basis.

(The writer is Founder & CEO Shree Tax Chambers)