Income-tax Refunds Flagged Under RMS: What New SMS/E-mail Means for Taxpayers

Income-tax Refunds Flagged Under Risk Management System (RMS) – What Is This New SMS/E-mail and What Should Taxpayers Do?

For Assessment Year 2025–26, many taxpayers have received system-generated SMS and email alerts informing them that their income-tax returns claiming refunds have been flagged under the Risk Management System (RMS) and kept on hold due to possible discrepancies. RMS is a data-analytics framework used before processing returns under section 143(1) to identify high-risk or abnormal refund claims, mismatches with Form 26AS, AIS/TIS, GST data, excessive refunds compared to income, incorrect deductions, loss adjustments, or computational errors. Importantly, such flagging does not imply wrongdoing but serves as a preventive measure. Taxpayers are advised to reconcile their returns with supporting data and, if errors are found, file a revised return under section 139(5) by 31 December 2025, which is penalty-free. After this date, only an updated return with additional tax is allowed. Early corrective action can avoid refund delays, adjustments, or future litigation.

1. Background of Communication

Many assessees for Assessment Year 2025-26 have recently received SMS and e-mail communications from the Income-tax Department stating that:

• A refund has been claimed in the return of income;
• The return has been identified under the Risk Management Process;
• Processing of the return has been kept on hold due to certain discrepancies;
• The assessee is advised to file a revised return before 31 December 2025; and
• An updated return may be filed from 1 January 2026, but with additional tax implications.

This communication is system-generated, PAN-specific, and forms part of the Department’s pre-processing risk mitigation framework.

2. What Is the Risk Management System (RMS)?

The Risk Management System (RMS) is an internal data-analytics and risk-profiling mechanism used by the Income-tax Department to:

• Detect high-risk or abnormal refund claims,
• Identify mismatches across multiple databases before issuing refunds, and
• Prevent erroneous or fraudulent refunds.

Under RMS, returns are screened before issuance of intimation under section 143(1).

If flagged, the return is temporarily kept in abeyance, and the assessee is nudged to voluntarily correct errors, if any.

3. Common Reasons Why Refund Returns Are Flagged

Based on professional experience and recent patterns, refund claims may be flagged due to:

1. Mismatch with Form 26AS / AIS / TIS, such as:

• • TDS claimed but not reflected,
  • Incorrect PAN reporting by deductor.

2. High refund in comparison to income, for example:

• • Large TDS on interest or contract income,
  • Excess advance tax or self-assessment tax.

3. Incorrect reporting of deductions/exemptions, such as:

• • Chapter VI-A deductions without corresponding evidence,
  • Exempt income inconsistencies.

4. Mismatch between ITR and GST data (for business assessees).

5. Incorrect carry forward or set-off of losses.

6. Clerical or computational errors in tax calculation.

Importantly, RMS flagging does not automatically mean concealment or wrongdoing.

4. Why the Department Is Advising a Revised Return

The communication specifically highlights that:

• The time-limit for filing a revised return for AY 2025-26 expires on 31.12.2025.
• Filing a revised return under section 139(5) is penalty-free, provided it is voluntary and within time.
• After this date, only an updated return under section 139(8A) is possible, which involves:
  • Additional tax (25% or 50% of tax payable),
  • No enhancement of refund or reduction of tax liability.

Hence, the Department is proactively giving an opportunity to taxpayers to correct genuine mistakes.

5. What Should Taxpayers and Practitioners Do Now?

A step-by-step professional approach is recommended:

Step 1: Do Not Panic

• This is not a notice, not a scrutiny, and not a demand.
• It is a facilitative, advisory communication.

Step 2: Download and Reconcile Data

• Compare ITR with:
  • Form 26AS,
  • AIS and TIS,
  • Books of accounts / bank statements,
  • GST returns (if applicable).

Step 3: Identify the Discrepancy

• Check tax credits, deductions, exemptions, and loss adjustments carefully.

Step 4: File Revised Return if Required

• If any error or overstatement of refund is found:
  • File a revised return before 31.12.2025.
• If the return is fully correct and supported, no immediate action may be required processing may resume after internal verification.

Step 5: Maintain Documentation

• Keep reconciliation workings and evidence ready in case of future query.

6. What If a Revised Return Is Not Filed?

• The Department may:
  • Seek clarification later,
  • Partially or fully withhold refund,
  • Make adjustments during processing under section 143(1),
  • Or convert it into a post-processing verification case.

Thus, early corrective action reduces future litigation and delays.

7. Key Takeaways for an Article Conclusion

• This SMS/e-mail reflects the Department’s shift towards data-driven, pre-emptive compliance.
• It aims to reduce incorrect refunds and post-refund recovery disputes.
• Taxpayers should view it as an opportunity, not a threat.
• Chartered Accountants play a crucial role in timely reconciliation and advisory.
• 31 December 2025 is a critical date for AY 2025-26.

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Author Note:

The author is a Chartered Accountant in practice with experience in Direct Taxes, valuation-related taxation issues, and start-up advisory. The views expressed are personal and intended solely for professional discussion.

He can be contacted for discussion and insights at mail id: kritmassociates@gmail.com and Mobile No. 9910859116.