Will your income tax refund be delayed this year?
As the tax filing season for ITR’s for the financial year 2024-25 is about to start, most probably after mid of June, many taxpayers who had properly planned their taxes are getting themselves ready to file their returns in the hope of receiving a refund.
However, this year, things might be a little different. Even if you file your return correctly you may still not receive your refund immediately or even on time, as this time, The income tax department has introduced stricter checks, and many taxpayers are already receiving such emails or notices in which they are informed that their refund will be held back.
Have you received such mail, do let me know below in comments
Now, let’s discuss what has been changed this year
This year, the department have decided not to issue refunds right away in case there are any pending issues with your past income tax returns. If your earlier returns are under review or reassessment, or if there is an old tax demand that has not been paid, your refund for the current year will be delayed and/or will be adjusted with your past demand or unpaid amount. Many taxpayers are getting emails saying that their refund is on hold until the tax office completes checking their older returns.
Why have been department doing this?
The government wants to take up a surety that no tax dues are left unpaid, as it impacts revenue. That is the reason government is taking these steps by using powers given under Section 245(2) of the Income Tax Act, that allows the income tax department to adjust the dues from the current year i.e. Financial year 2024-25 refund with old tax amounts that are still unpaid. But before making this adjustment, the department has to inform the taxpayer and give them a chance to explain their side, reason I will explain in Ericsson India Pvt. Ltd. v. CIT case law.
Legally speaking: “As per Section 245(2) of the Income-tax Act, 1961, where a refund becomes due to a person and any proceeding for assessment or reassessment is pending, the Assessing Officer may withhold the refund…”
Analysis: Section 245(2) allows department to withhold the refund of assessee in case assessment or reassessment proceedings are pending and in that case granting of refund may adversely affect revenue, but only after recording reasons as well as obtaining approval. Unilateral adjustments without prior intimation are contrary to the statute and settled court decisions let’s discuss them below:
In Ericsson India Pvt. Ltd. v. CIT, W.P. (C) No. 8376/2016, decided on 14.12.2016 it was decided whether the Income Tax Department can withhold a refund under Section 245 without issuing a prior intimation or affording an opportunity of being heard, on which judgement was given that non-issuance of notice before such adjustment violates procedural fairness, even if the demand exists on record. The Department cannot unilaterally adjust the refund without compliance with the statutory safeguards.
Even there is CBDT Instruction No. 01/2017 [F.No. 312/22/2016-OT] dated 29.03.2017 issued to streamline refund adjustments under Section 245, particularly in the context of Central Processing Centre (CPC), Bengaluru operations, stating that refunds should not be withheld automatically against outstanding demands without following due process under Section 245.
This instruction acted as a binding procedural guide for all AO/CPC officials for ensuring the administrative discipline in refund adjustment cases, supporting the taxpayer grievance redressal in case of refund delay or dispute related matters.
Hence this Section 245(2) of the Income Tax Act says that if you are eligible for a refund but there is some tax that you still owe from previous years, then the department can hold your refund. However, they must send you a notice first. You can then check whether the amount mentioned is actually due or if it has already been paid or challenged in appeal. If the taxpayer does not reply to the notice, the department may go ahead and adjust the refund against the pending dues.
Why are so many notices being sent to salaried individuals now?
The income tax department now uses AI linked software as well as data mining tools to check whether your income and tax details match with what is reported by banks, employers, Crypto exchangers, brokers and others.
If they find any mismatch in the same or if your earlier return is still under investigation, then in that case a notice is automatically generated by the system. They are not always the serious concern but need to be evaluated by the taxpayer. In fact, many of these are routine checks, remember last months department have sent conformation notices to all the individuals who had given political donations?
But to be on the safe side, the department wants to verify everything before giving any refund, that’s the reason they send these type of notices
How can you handle a notice or discrepancy?
If you get a notice saying that your refund is being adjusted due to old dues, the first thing to do is log in to the Income Tax Department’s e-filing portal. There is a section where you can view the outstanding demand details.
Once you check the information, see if it is correct. If you have already paid the amount or if you are contesting it, you can submit a reply on the same portal. You may also need to upload supporting documents such as challans or orders from previous appeals.
You need to respond within the given time, which is usually 21 days. If you do not reply such notice on a timely manner, in that case the department may go ahead and deduct the outstanding amount from your refund. If the issue cannot be fixed in the online manner, then alternatively you may also write to your local income tax officer or file a rectification request under the law.
What are the common reasons for refund delays?
Refunds are usually delayed because of small mistakes done by taxpayers or missing information, last time I got a client who filed his ITR for 7-8 times himself, all the time it was resulting in defective return, later on he came to me for which I resolved the issue, hence sometimes, the income mentioned in the return does not match what the department has in its records, leading to a defective return and it is also prone to many penalties and legal issues.
Even in many cases there could also be a mismatch in the amount of TDS or any other details. Nowadays many of us trade in stock market, what if you sold some shares and forgot? In that case you might get to file wrong form resulting in defective return.
Even seemingly minor errors, such as typographical mistakes or incorrect digits in income fields, can trigger a defective return notice, last time even if there are mismatch in names of clients, notice was sent to revalidate bank accounts.
Sometimes, even the problem comes due to a previous year’s tax return that is still under review or due to an old demand that was not yet cleared.
What should you do to avoid these delays in the future?
To prevent such delays, it is advisable to make sure that your tax return is correct and matches with the records as per your Form 26AS or AIS portal. Before filing, we must check is there are any past dues or proceedings, Secondly we must regularly check our compliance portal etc. If there is any discrepancy, we are required to clear them or respond to any past notices if you haven’t done already.
In case you go to a professional for your filings, you must keep all your documents ready, like tax payment challans, form 26 AS, salary slips, Bank statements, as well as previous notices.
Conclusion
Getting a notice from the tax department can feel stressful, but not all notices are serious. Many of them are just reminders or requests for clarification. But it is very important to respond to every notice properly and within time. Ignoring a small issue today can turn into a bigger problem later. If you feel confused or unsure, you may comment below, I will try to respond promptly. Timely and proper action can save you a lot of trouble and ensure your refund is processed without unnecessary delay.
Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice
***
Author can be contacted at aman.rajput@mail.ca.in
Author Bio
