The Centre in December had announced the package and said it would be distributed among the 36,384 families from POJK and Chhamb.
The displaced families allege the process to verify their identity to claim the package has been "very slow".
"Revenue department authorities - scrutinising the displaced people's files - seek a number of documents like revenue records, state subjects and Aadhaar cards for verification... Majority of the families are unable to provide these documents," said Capt (retd) Yudhvir Singh Chib, the chief the POJK Displaced Peoples' Front.
Chib said a delegation representing the displaced people had met Union Home Minister Rajnath Singh and briefed him about the problems they face in filling up claimant forms.
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"He listened to our problems patiently and assured us that one documentary proof is sufficient and gave direction to Deputy Chief Minister Nirmal Singh to personally look into the issue," he said.
Chib said more than 5,000 families have completed the formalities but are yet to receive the Rs 5.5 lakh package promised to each one the families.
He said the protest was also meant to highlight the issue of the 1,000 families who have not registered themselves with the government, or those who have settled in other parts of India.