A parliamentary panel has raised concerns over the increasing delay in processing income tax refunds in India. According to the latest report tabled in Parliament, nearly 27 lakh refund cases in FY 2025-26 were processed after the standard 90-day timeline, highlighting growing pressure on the tax administration and deeper scrutiny of refund claims.
The committee also pointed to a massive backlog of Rs 47.42 lakh crore in outstanding direct tax arrears, urging the government to create a structured framework to address long-pending and largely uncollectible tax demands.
Parliamentary Committee Highlights Delay in Refund Processing
The Standing Committee on Finance, in its 30th Report on Demands for Grants (2026-27), noted a steady increase in the number of refund cases taking longer than the prescribed 90-day period.
Key findings include:
- 12.7 lakh refund cases delayed beyond 90 days in FY 2023-24
- 17.1 lakh cases delayed in FY 2024-25
- Around 27 lakh cases delayed in FY 2025-26
The committee acknowledged that the delay was partly due to intensified verification measures introduced by the Income Tax Department to detect fraudulent deduction claims.
CBDT Explains Increased Scrutiny of Refund Claims
Officials from the Central Board of Direct Taxes (CBDT) informed the committee that the department increased scrutiny after detecting large-scale fraudulent deductions, particularly related to bogus donations under Section 80G and similar claims.
The CBDT Chairman explained that tax authorities conducted extensive verifications starting July 2025, which resulted in a temporary slowdown in refund processing.
Despite the delays, the department stated that:
- 3.38 crore refunds were issued during FY 2025-26 (up to January 31)
- Total refunds amounted to Rs 1.62 lakh crore
- The average refund processing time increased to 35 days, compared to 24-25 days in previous years
Voluntary Revisions Reduced Refund Claims
The tax department also highlighted a compliance-driven approach that encouraged taxpayers to revise incorrect claims voluntarily.
More than 50 lakh updated or revised income tax returns were filed during the year, leading to a reduction of about Rs 2,000 crore in refund claims.
Officials described this as a "non-litigation approach", aimed at improving compliance without initiating lengthy disputes.
Direct Tax Arrears Reach Rs47.42 Lakh Crore
The report also flagged the alarming level of outstanding direct tax demands, which stood at Rs 47.42 lakh crore as of January 31, 2026.
However, the tax department clarified that a large portion of these dues may never be recovered.
Breakup of arrears:
Rs 36.27 lakh crore (76%) classified as uncollectible
Reasons include:
- Taxpayers becoming untraceable
- Companies under liquidation or insolvency
- Lack of attachable assets
The committee described the figures as "astronomical arrears locked due to practical constraints."
Committee Recommends Task Force to Address Arrears
The panel also criticised the current practice of writing off only small tax demands in isolated cases.
So far, the department has written off:
- 1.12 crore small demand entries
- Each up to Rs 1,000
- Total value Rs 611 crore
The committee said this approach is insufficient and recommended creating an inter-departmental task force to conduct a comprehensive review and develop a long-term strategy to tackle uncollectible tax arrears.
Conclusion
The parliamentary report highlights two major challenges for India's direct tax administration - rising delays in income tax refund processing and a massive backlog of outstanding tax arrears. While the government has intensified scrutiny to curb fraudulent claims, the committee has stressed the need for improved systems and coordinated policy measures to ensure timely refunds and effective recovery mechanisms.
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