Despite the December 31 deadline for filing belated income-tax returns having passed weeks ago, a large number of taxpayers are still awaiting processing of their returns and the credit of refunds. Many continue to check the income-tax portal daily, hoping for an update.
Latest figures from the Income Tax Department show that nearly 8.80 crore returns have been filed for AY 2025-26. While most returns have cleared the verification stage, around 63 lakh returns are still pending processing, leaving refund claims on hold.
Delay within permitted timelines
Although the wait has caused concern among taxpayers, the delay is well within the statutory time limits. As per the income tax law, the department has up to nine months from the end of the financial year to process returns. Accordingly, returns for AY 2025-26 can be legally processed until December 2026.
The delay, therefore, is not due to any legal change but reflects a shift in the way returns are being scrutinised.
Increased data matching slows processing
Return processing has become significantly more technology-driven and data-focused. Each return is now matched against multiple information databases, including TDS records, bank interest details, investment disclosures and high-value transaction reports.
Even small inconsistencies between filed returns and reported data can lead to the system flagging the case for further examination, slowing down overall processing. While this has extended timelines, it also indicates tighter compliance controls.
Refunds paused under the corrective approach
Refund delays have also increased due to the government's "nudge" policy. In cases where discrepancies are detected, refunds are not released immediately. Instead, taxpayers are informed and allowed time to revise or correct their returns. Processing resumes only after the data is aligned.
This approach aims to prevent future notices, demands or penalties by addressing mismatches at an early stage.
Other factors contributing to delays
Operational challenges have added to the backlog. Several ITR forms and utilities were notified later than usual, pushing the entire filing and processing schedule forward. In addition, cases involving large refund amounts, foreign income, or complex tax positions are now undergoing enhanced scrutiny.
Refund rights remain intact
A delayed refund does not mean it has been rejected. Eligible taxpayers are entitled to interest on refunds if processing extends beyond prescribed timelines, subject to conditions related to the date of filing.
A tax expert noted that even if statutory deadlines for belated or revised returns have expired, taxpayers do not automatically lose their right to claim refunds arising from excess TDS, advance tax, or self-assessment tax.
Relief through condonation of delay
Under Section 119(2)(b) of the Income-tax Act, tax authorities have the power to condone delays in genuine hardship cases. To streamline this process, the CBDT issued Circular No. 11/2024, which lays down a consolidated framework for considering delayed refund claims.
The circular allows refund applications to be examined on merits even after statutory timelines, provided the taxpayer establishes reasonable cause for the delay.
What taxpayers need to do
Taxpayers seeking relief must submit a condonation application explaining the reasons for delay, such as medical issues, incorrect professional advice or other bona fide circumstances along with the return of income and supporting evidence for the refund claim.
The circular specifies monetary limits for approval by different income tax authorities and clearly states that no application for refund or loss will be entertained beyond five years from the end of the relevant assessment year for applications filed on or after October 1, 2024.
Such applications are required to be decided within six months from the end of the month in which they are received, subject to verification.
Practical advice for taxpayers
Taxpayers are advised to regularly review their Annual Information Statement (AIS) and Form 26AS, promptly respond to any notices or system alerts, and correct mismatches wherever necessary.
For most taxpayers awaiting refunds this year, the situation calls for monitoring and timely compliance rather than concern, as the delays largely stem from enhanced verification and procedural changes rather than denial of claims.
CAclubindia
