Errors in ITR filing to extra audits: Why your ITR refund may be delayed

The Income Tax Department  is reportedly looking to  shorten the average processing time for getting tax refunds from 16 to 10 and the  revised timeframe would be implemented within the current financial year.  But this year, a substantial portion of taxpayers are grappling with the challenge of experiencing delayed income tax return (ITR) refunds.

This issue has been primarily caused by the significant surge in the number of taxpayers who have submitted their ITR for assessment this year. Notably, a staggering 6.86 crore returns were filed during this period, which is 16.1% more than the total ITRs for the AY 2022-23 (5.83 Crore) filed till 31 July 2022.  Out of these 6.86 crore returns, approximately 6.28 crore successfully verified by August 13.

What is Income Tax refund
Income tax refund means a refund amount that is initiated by the income tax department if the amount paid in taxes exceeds the actual amount due (either by way of TDS or TCS or Advance Tax or Self-Assessment Tax). The tax is calculated after taking into consideration all the deductions and exemptions at the time of assessment by income tax department.

When does the refund process begin?

Refund processing by the tax department starts only after the return is e-verified by the taxpayer. Usually, it takes 4-5 weeks for the refund to be credited to the account of the taxpayer.

" While the optimal timeframe for the Income Tax department to process refunds lies between 20 to 45 days, it's worth noting that the uppermost limit for ITR processing and intimation dispatch by the Centralized Processing Center (CPC) is set at 9 months from the conclusion of the fiscal year in which the respective return was furnished. This acknowledgement of varying timeframes underscores the scale of the challenge presented by the substantial number of ITR submissions and the subsequent efforts to ensure timely and accurate refund processing," said  Sandeep Bajaj, Advocate, Supreme Court of India.

Why the delay this year?

"The delayed processing of tax returns this year can be attributed to two main factors. Firstly, a significant number of taxpayers filed their returns just before the deadline, straining the department's portal and mechanism. Additionally, the substantial increase in return filings, many of which include refund claims, has contributed to the extended processing time faced by the Income Tax Department," said Prateek Goyall, Partner at law firm MV Kini.

What usually leads to a delay?

Certain other circumstances can lead to either a delay or a postponement in the processing of these refunds. Potential causes for these delays can be incomplete ITR processing due to non-verification, pending processing of the ITR, an inactive bank account, or furnishing erroneous or invalidated information during ITR filing. 

"In exceptional circumstances, refunds might encounter delays or denials attributed to fraudulent activities. In the occurrence of such uncommon situations, it is imperative for individuals to promptly initiate contact with the Internal Revenue Service (IRS). By promptly informing the IRS about the situation, the necessary steps can be taken to safeguard against fraudulent actions and to ensure that the refund is re-issued securely to an alternative account," said Bajaj.

What to do if you have not got your refund?

Refund is not received during this duration, the taxpayer must check for intimation regarding discrepancies in ITR; check email for any notification from the IT department regarding the refund. The taxpayer can also check refund status on the e-filing as per the process detailed hereunder.

How to check if you have got your refund?

To ascertain whether a refund has been disbursed, halted, or declined, the 'Know Your Refund Status' tab on the e-filing portal's homepage serves as a valuable tool. If a refund request encounters failure, the option to request a re-issuance of the income tax refund is available through the e-filing portal, with specific details provided.

If you had filed your income tax returns (ITR) by the 31 July deadline, you would have got refunds by now if eligible. If your refund has been disbursed, the status will indicate, ‘Refund is already credited to your bank; please contact your bank.’  You can also view the account number where the refund has been credited and the payment date.

Eight  other reasons for delays

Here are some other reasons as to why your refund may have been delayed, according to Ankit Rajgarhia, Principal Associate, Karanjawala & Company, Advocates.

1. Tax Law Changes: Sometimes, the rules about taxes change. When that happens, the people who handle taxes need to update their computer systems and forms to follow the new rules. This can slow things down.  For example, if a new type of tax discount is introduced, they have to change their computer programs to include it. This can make processing your taxes take longer.

2 More Complicated Taxes: If your tax situation is more complicated, like if you have different jobs or investments, it takes more time for them to make sure everything is correct.  For instance, if you work for yourself and have a lot of expenses to deduct, they need to double-check those numbers.

3 Security Reasons: Tax agencies want to keep your information safe. So, they use stronger security checks to make sure nobody is pretending to be you. But these extra checks can slow down the process. If they think something is not right with your tax return, they'll take more time to check.

4.Not Enough Resources: Sometimes, there aren't enough people or money to do the work. If there are fewer workers to handle tax returns, it means things will take longer.  For example, if they don't have enough money to hire temporary workers during the busy tax season, it can make the process slower.

5 Lots of People Filing: Imagine if everyone handed in their homework on the same day – it would take a long time for the teacher to check them all. The same happens with taxes. When many people send in their tax returns at once, like just before the deadline, the tax office can get overwhelmed. This causes delays.

6 Mistakes or Missing Information: If you make a mistake on your tax form or forget to tell them about something important, they have to stop and ask you for more details. Fixing mistakes takes time. For instance, if you forget to mention a type of income, they will need to ask you about it.

7 Extra Checks and Audits: Sometimes, they need to take a closer look at certain tax returns to make sure everything is correct. This takes more time, especially if they find something that seems odd. For example, if you say you spent a lot more money than you earned, they might want to check why.

8. Mismatch of account number:I A refund from the Income Tax Department scheduled to be paid may fail to get credited to your bank account for the following reasons:

1. In case the bank account is not pre-validated. It is now compulsory to pre-validate your bank account.

2. The name mentioned in the bank account does not match with PAN card details.

3. In case of an invalid IFSC code.

4. If the account that you have mentioned in the ITR has been closed.

Wrong bank account number or incorrect name on the bank account are very reasons for refunds not reaching the intended recipient. The name on the bank account has to match the name on the tax return too. If your refund has not reached you due to a mismatch of account numbers, you can take the following steps to rectify the situation.

1. Check the bank account number and IFSC code you have provided when filing your tax return. 
2. Make sure the numbers are correct and match the account number and IFSC code of your bank account. 
3. Contact your bank to verify that the account is still active and that there are no holds on the account.
4. Then contact the IT department to request a refund re-issue. 
5. When you contact the ITD, provide them with your PAN, the assessment year, and the refund amount. 
6. You can contact the IT department by phone, mail, or via their e-filing portal.

9. Non-linkage of PAN – Aadhar – In absence of PAN – Aadhar Linkage, the PAN becomes inoperative, which will not be eligible for any income tax refunds unless linked. 

10. TDS/TCS mismatch – Discrepancies in TDS claimed in 26AS might result from employer/bank errors, requiring correction and causing delays, said Goyall.

If the assessee have filed the Income Tax Return and did not received the refund yet, they can check whether the process of verification is completed of their income tax return. 

" If the verification is not comeplete, then they need to verify the return. In case the said Return is e-verified and processed but still refund is not credited to their account, then it needs to submit a grievance on the e-filing portal seeking reasons for the same and respond accordingly," added Goyall.