Income Tax Refund Delayed: 15 possible reasons and what to do

26 Aug 2024 , 12:31 PM

IT REFUND DELAYED: WHAT TO DO?

In the last few years, the government of India has substantially cut down on its ITR processing and refund processing time. Unlike in the past where all refunds above ₹50,000 were issued in physical form, today all refunds are issued in electronic form only. The first step before going ahead is to ensure that you are registered on the Income Tax website with your user name and password. Once you have direct access to your income tax account, a number of these discrepancies can be automatically resolved.

In the previous financial year, the government had claimed that the average time for processing of refunds had come down to just a little over 11 days. However, remember this is the average of nearly 6.77 Crore returns filed and there are bound to be individual causes for the delay in refund. Today, whether you are salaried or self-employed, government rules stipulate that TDS should be deducted at the time of payment. In case excess tax has been deducted, you need to file the returns to claim refund. Let us look at 15 possible reasons why your income tax refund can be delayed.

• Give the refund the normal course of time

On an average, if your filing is done properly and the Income Tax department does not find any serious discrepancy, then the normal time for a refund issue is anywhere between 20 days and 45 days. This is the basic time required. Remember, for financial year 2023-24, corresponding to assessment year 2024-25; close to 7.28 Crore returns have been filed. Obviously, the processing time for so many assessee records itself is going to take longer. Ideally, you should start worrying about the refund, if you have not got the refund, even 45 days after the filing of the returns.

• When you filed the returns also matters

One of the experience of the past few years has been that those who file their returns up to 1 month early, tend to have their returns processed much quicker. That is when the pressure on IT return processing is quite low. However, if you have file your returns in the last 3-4 days; i.e. between July 27 and July 31, 2024, then it is likely that your returns could take more time to be processed since the pressure on the Income Tax department will be quite high at this point of time. Hence, for refunds pertaining to returns filed in the last few days, some amount of delay in the processing is inevitable.

• Ensure that you have checked the bells and whistles

In our obsession to complete the tax return filing on time, we tend to forget there are some basic building blocks that can ensure a smooth refund. For example, if you have not mapped your Aadhar and PAN (which is mandatory), you need to be prepared for refund delays. An important factor people forget to check is the bank mandate. Today, refunds are only paid if the name in the Income Tax record match with the name in the bank account. Also, the bank account should be an active bank account. In case, there is any discrepancy in the bank account number of the IFSC code, the refunds can once again get delayed.

• E-verification is often one reason for refund delays

You must remember that once you file the returns successfully, it is necessary to verify the returns. This can either be an e-verification or it can also be a physical verification. In e-verification, you can verify the returns either through your online Aadhar, internet bank account or with registered digital signature. Alternatively, you can print the copy of the ITR-V and send it by registered post or speed post to CPC Bengaluru. Your filed return is not valid unless it is verified within 30 days of filing returns. Ensure that verification is done on time, otherwise, your refund is bound to be held up.

• Refund time is also dependent on the type of filing Form used

Today, persons filing their returns must use the appropriate forms. For instance, Form-1 (Saral) and Form-4 (Sahaj) are the simpler kind of forms. In these cases, the ITR processing and the refund is much quicker. However, if you have used Form-2 or Form-3 with multiple sources of income, then the return processing takes longer as the IT department needs to verify the authenticity of the data provided by you across different check point sources. Normally, the shortest refund times are for Form-1 and Form-4; while returns filed under Form-2 and Form-3 take a longer time to process.

• Is there a tax credit mismatch?

One of the common reasons for the refund delay is there is a tax credit mismatch between what is in the records of the Income Tax Department and what you have claimed in your Income Tax filing. Quite often, your employer or client may have deducted TDS from your payment but the amount may not be deposited in the government. In such cases, the discrepancy will be evident if you compare Form 16 / Form 16A with the Form 26AS on the Income Tax website. The Form 26AS is the final authentic data that the IT department uses. At times, you find that the Form 26AS shows as tax paid but you still find the Tax Credit Mismatch. In such cases, you can ignore the discrepancy. You can check once under the SERVICES menu on top and click on Tax Credit Mismatch to see if there are any such cases.

• Errors in the IT return filed

This is a very common reason for delays in refund. For example, you may not have shown some income in your returns or such income may have been under-reported. Remember, the Income Tax Annual Information Statement (AIS) tracks all your transaction through the PAN number quoted. In case, the volume of transactions on the PAN and the income reported are not in sync, the ITD may hold back your refund until you are able to provide additional information or are able to justify the discrepancy. In case, you have underpaid tax, the ITD will instruct you to pay the additional tax with the relevant penalty charges and interest and only after that the refund will be processed.

• Refunds can be held up due to past dues on tax

It happens quite often that you get a notice from the Income Tax department about tax dues of the current year or the previous year after the returns are approved and refund paid. This is what the ITD calls random check of cases. In case, the department has taken up your return for a random check and they find legitimate tax dues, you will get an emails and also find the details of the dues under the Pending Action menu and under the Worklist option on the Income Tax website. If there are dues pertaining to the past, the Income Tax Department (ITD) is entitled to withhold your current refund.

• Mismatch in capital gains reported

One of the most common reasons for delay in refunds is that there is a mismatch in the capital gains reported by you in the returns. The IT department keeps a record of all your equity market and mutual fund transactions and any discrepancy in the ITD calculation of capital gains will lead to a notice from the ITD and delay in processing of your refund. It is a good idea to always verify your capital gains as per the  Annual Information Statement (AIS) and ensure there are not major discrepancies. Typically, the ITD will flag your returns only if the discrepancy is a major discrepancy.

• Differences over exemptions claimed as deductions

Interestingly, one of the most common reasons for disputes between assessees and the Income Tax department is in the realm of Section 80G towards donations. In reality, your returns can get flagged if your claims for deductions under Section 80C or Section 80D are not matching with the IT records. For example, when you pay life insurance premium or invest in ULIPs and ELSS, there is an audit trail with the ITD. However, there is no PAN trail for tuition fees paid for your children, which is also exempt under Section 80C. In such cases, you can explain online the reason in the facility provided. It should not be much of an issue.

• Mismatch due to losses wrongly claimed

When you claim losses as a write-off, there are some conditions that you need to satisfy. For example, short term losses can be written off against STCG and against LTCG. However, long term losses can only be written off against LTCG. Similarly, you can only claim past losses brought forwards, if such losses have bene shown in the IT returns. If not, the loss write-off is likely to be rejected and refund delayed. Also, people often show the intraday losses as a write-off against capital gains. That is not permitted since intraday is a speculative gain / loss and can only be written off against another speculative income header.

• Have you got a defective ITR notice under Section 139(9)

A common reason for delays in refund is the ITD finds your return to be defective. Either your refund claim is invalid or your exemption claim is invalid. You need to immediately respond to such Section 139(9) notice. You will get such notices by email and you will also find it in the secured section in the Income Tax website. In response to the defective returns notice, you can either re-file the returns or you can file a fresh return or you can also just respond to the query in the structured section. Not responding to such a notice can also lead to your refunds being held back.

• Have you mixed up TCS and TDS paid records while filing?

This may sound strange, but it does quite often. TDS is a deduction on actual flows and TCS is a presumptive tax on transactions like foreign remittances above a certain threshold. While filing returns, you may file the TCS under the TDS header or vice versa. In such cases, you may be marked as a defective return and the refund delayed. One of the best ways to avoid such an eventuality is to use the facility of downloading your TDS and TCS details from the system. That reduces your chances of error in manual entry.

• Your refund request could be under scrutiny

This is something you can easily figure out by visiting the refund section of the secured Income Tax area and logging in with your PAN number and password. If you refund is under scrutiny, the refund will not be dispatched till the scrutiny is completed. Normally, the reason for the scrutiny are not provided and only if there is a question that the department has, they will get back to the assessee. In such cases, the refund may get delayed for a longer period of time.

• It could just be a systemic delay

Last, but not the least, it could just be a system delay at the end of the IT department. Quite often, the government has to manage its cash flows and in that case it delays the refunds of a larger size, while smaller refunds are paid immediately. Quite often, the delays in payment of refunds also happen due to some bugs in the IT software that is being used. These are normally rectified quickly, although you may have to just wait for no fault of yours.

HOW TO AVOID REFUND DELAYS – SIX MANTRAS

Remember, if there is a systemic reason for the delay in refunds, you have to wait. However, a bit of due diligence from your side can help. Here are 6 such mantras.

• File your returns early. Avoid last minute filings, which can exposure you to technical errors and even refund delays due to filing periods pressures.
• A simple thing you can do is to cross-check the details of tax paid with Form 26AS, which can be downloaded. It is the final record with IT department and considered authentic.
• Ensure that details of your capital gains and other income like interest, dividends etc are cross verified with the Annual Information Statement. This can avoid refund delays.
• Bank details are an important X-factor in the entire story. If you bank details, bank name, and IFSC are e-verified in advance, most refund delays can be avoided.
• Keep a track of any notice or information demand from the IT department under the Pending Actions Worklist. A quick response can speed up the refund processing.
• Take the help of a tax-expert in form selection, and actual filing process flows. This can sharply reduce your chances of refund delays.

Your refund status can be checked online on the Income Tax website. Most of the refund related problems can be sorted out by you online itself.