Top Reasons for Delay in Your Income Tax Refund

September 12, 2024

The tax filing season is officially over, however many taxpayers are still facing delays in receiving their income tax refunds. The process of filing Income Tax Returns (ITR) may have been completed on time, but the issuance of refunds is often a separate process, dependent on various factors. These delays can stem from reasons like mismatches between the information in Form 26AS and the ITR, pending verifications, and technical issues within the tax department’s processing system.

Even after submitting all the required documents, taxpayers may have to wait for the Income Tax Department to thoroughly process the returns. Factors such as high volumes of ITRs filed near the deadline, system upgrades, and additional checks to verify the information provided in the return can cause the department to take longer than anticipated in processing refunds.

In some cases, refunds may also be delayed due to necessary adjustments against previous tax dues or other liabilities, which require additional scrutiny.

[Read: How to Check Your Income Tax Refund Status for AY 2024-25]

Income tax refunds are eagerly awaited by taxpayers as they represent excess taxes paid throughout the financial year, which are returned by the tax department. However, delays in receiving income tax refunds are common. Taxpayers often find themselves wondering why their refunds haven’t been credited to their bank accounts despite filing timely and accurate returns.

This article dives into the common reasons behind delayed income tax refunds, explains the various refund statuses, and explores how taxpayers can avoid issues in the future.

There are several reasons why an income tax refund may be delayed, ranging from errors in tax filings to system glitches or additional verification requirements by the tax department. Here are the top reasons behind these delays:

1. Mismatch Between Form 26AS and ITR

One of the most common reasons for delays is discrepancies between the information provided in the Income Tax Return (ITR) and Form 26AS, which is a consolidated annual tax statement. Form 26AS includes details of taxes deducted at source (TDS), taxes paid, and refunds received. If there is a mismatch between the TDS reflected in Form 26AS and the amount claimed in the ITR, it can lead to delays in the refund process. The tax department often holds back refunds until these discrepancies are rectified.

2. Verification Pending on ITR Portal

Filing the income tax return is only part of the process. After filing, the taxpayer is required to verify the return either electronically or by sending a signed physical copy of the ITR-V to the Centralized Processing Centre (CPC) in Bengaluru. If the verification is not completed, the return will remain unprocessed, causing a delay in the refund. It is crucial to verify your ITR promptly after filing to avoid unnecessary delays.

3. Incorrect Bank Account Details

Another common reason for delayed refunds is the entry of incorrect bank account details in the ITR. The tax department processes refunds through direct credit to the bank account mentioned in the tax return. If the account number or IFSC code provided is incorrect, the refund will fail, and the taxpayer will need to update the correct details and request a re-issue of the refund. It’s advisable to double-check your bank details while filing the return to avoid this issue.

[Read: Income Tax Refunds: All You Need to Know for Quick And Easy Refund]

4. ITR Not Processed by Tax Department

The processing of income tax returns is a multi-step process. Sometimes, returns may not be processed on time due to high volumes of filings, system upgrades, or verification checks. The tax department typically takes time to validate the return, especially if any additional information or clarification is required. Until the ITR is processed, the refund will not be initiated.

5. Refund Adjustment Against Previous Tax Liabilities

If you have any outstanding tax liabilities from previous assessment years, the tax department has the authority to adjust your refund against these dues. In such cases, the department will issue a notice informing you about the adjustment. This adjustment process can result in a delay in receiving your refund. Taxpayers must ensure that all outstanding dues are cleared to avoid delays.

6. Incorrect or Incomplete Tax Return Filing

Filing an incorrect or incomplete return can significantly delay your refund. Errors in calculation, omission of income, or incomplete submission of required documents can lead to the return being flagged for review. The tax department may send a notice asking for clarification or additional documentation, and until the issue is resolved, the refund will remain on hold.

7. Claiming Ineligible Deductions or Exemptions

If a taxpayer claims deductions or exemptions, they are not eligible for, this can raise red flags during the processing of the return. The tax department may initiate further scrutiny or an audit to verify the claims, which can delay the refund. It’s essential to ensure that the deductions and exemptions claimed in the ITR are valid and supported by necessary documentation.

Risk Management System in Income Tax Refund Process

The Indian income tax system has advanced through technology and policy reforms, enhancing transparency and compliance. A key development is the Risk Management System (RMS), implemented to ensure accurate return processing, detect fraud, and streamline refunds. However, it has increased scrutiny for some taxpayers, potentially delaying refunds.

Before issuing a refund, the tax department uses the Risk Management System (RMS) to flag ITRs needing further scrutiny. If your ITR is flagged, an intimation will be sent to your email and can also be viewed on the e-filing portal.

The Risk Management System requires taxpayers to confirm their claims before refunds are issued. ‘Your ITR has been flagged under this process, and confirmation is needed on specific claims, deductions, or omissions in your return.’

Pending confirmation from the taxpayer’s end can be a key reason for delays in income tax refunds. When the Risk Management System flags an ITR for additional scrutiny, the refund process is halted until the taxpayer confirms specific claims or deductions. Failing to respond promptly to these requests can significantly delay the issuance of the refund.

Understanding Income Tax Refund Statuses

The Income Tax Department provides a tool to check the status of your refund on the e-filing portal. Different statuses are shown depending on the stage of processing. Here’s a breakdown of the common refund statuses and what they mean:

1. Refund Issued

This status means that the tax department has processed your ITR and issued the refund. The refund will be credited to the bank account mentioned in your return. It’s advisable to keep track of your bank account for the refund deposit. If the refund has not been credited even after the status shows ‘Refund Issued’ you should check your bank details or contact your bank.

2. Refund Failed

This status appears when the refund process fails due to incorrect bank account details, such as a wrong account number or IFSC code. To resolve this issue, you will need to update the correct bank account information on the e-filing portal and request a re-issue of the refund. It’s important to ensure that the bank account provided is active and linked to your PAN.

3. Return Processed with No Refund Due

If this status appears, it means that your return has been processed, but there is no refund due to you. This could happen if the tax paid is equal to the tax liability or if the tax department has adjusted the refund against previous dues. In such cases, you should review your ITR to confirm the calculations.

4. Refund Adjusted Against Outstanding Demand

If you owe any tax from previous years, the tax department may adjust your current year’s refund against this outstanding demand. The department will issue a notice under Section 245 informing you of the adjustment. You can check the outstanding demand and raise a grievance if you disagree with the adjustment.

What to do if Your Refund is Delayed

If your income tax refund is delayed beyond the normal processing time, here are a few steps you can take to resolve the issue:

1. Check Your Refund Status Online Visit the income tax e-filing portal to check the status of our refund. You can log in using your PAN and password and navigate to the ‘Refund/Demand Status’ section under ‘My Account.’ The refund status will give you a clear picture of where your refund stands and whether any action is required from your end.

2. Rectify Errors in the ITR If there are errors in your ITR, such as a mismatch with Form 26AS, you can file a rectification request under Section 154 of the Income Tax Act. The rectification allows you to correct errors in the ITR, such as incorrect tax payments or misreporting of income.

3. Respond to Notices from the Tax Department If you receive a notice from the tax department asking for additional information or clarifications, it’s crucial to respond promptly. Delays in responding to such notices can prolong the refund process. You can submit the required documents online through the e-filing portal.

4. Contact the Centralized Processing Centre (CPC) If your refund is delayed and you’ve verified that all details are correct, you can contact the CPC in Bengaluru for assistance. You can reach them via the helpline number or raise a service request on the e-filing portal.

5. Ensure Bank Account is Pre-validated and Linked with PAN The tax department credits refunds only to bank accounts that are pre-validated and linked with the taxpayer’s PAN. Ensure that the bank account you’ve provided meets these requirements. You can check the pre-validation status in the ‘Profile’ section of the e-filing portal.

This article first appeared on PersonalFN here