Tax refunds delayed: Data checks, nudges slow ITR processing for AY 2025-26; what taxpayers can do

Even weeks after the December 31 deadline for filing belated income tax returns, a sizeable number of taxpayers are still refreshing the portal, waiting for their returns to be processed and refunds to arrive. According to the Income Tax Department’s latest figures, about 8.80 crore returns have been filed for the Assessment Year 2025–26. While most have moved through verification, nearly 63 lakh returns remain under processing — keeping many refund claims in limbo.

For anxious taxpayers, this delay may feel unusual, but it is well within the system’s legal timeline. The tax department is allowed up to nine months from the end of the financial year to process returns, which means filings for this assessment year can legally be taken up till December 2026.

What has changed this year is not the law, but the method. Return processing has become far more data-driven. The department now cross-checks every return against multiple information streams — from TDS records and bank reports to investment disclosures and high-value transaction data. If even a small mismatch appears, the system flags the return for review. This has slowed things down, but it also reflects a shift towards cleaner compliance.

Another major reason refunds are taking longer is the government’s recent “nudge” initiative. Instead of issuing refunds immediately in cases with discrepancies, taxpayers are first alerted and given time to revise or update their returns. Processing resumes only after the data is corrected. In effect, refunds are being paused deliberately to avoid future tax demands or penalties.

Operational factors have also added to the slowdown. Several ITR forms and utilities were released later than usual this year, pushing the entire filing and processing calendar forward. On top of that, returns involving large refunds, foreign income or complex claims are now undergoing extra scrutiny.

Steps to claim your tax refund

The good news is that delayed refunds do not mean denied refunds. Interest is payable on eligible refunds if processing stretches beyond the prescribed period, though the calculation depends on when the return was filed.

According to CA Dr Suresh Surana, “With the expiry of the deadline for filing belated or revised income-tax returns for the relevant Assessment Year (AY), many taxpayers are apprehensive about refunds arising from excess TDS, advance tax, or self-assessment tax already paid. While missing the statutory deadline does close the normal route of claiming a refund through a valid return, it does not automatically extinguish the taxpayer’s right with respect to such claims.”

He added: “The Income-tax Act empowers the tax authorities to grant relief by condoning delays under Section 119(2)(b), where a taxpayer demonstrates genuine hardship and a valid, verifiable refund claim. In line with this, the CBDT has recently issued Circular No. 11/2024, which consolidates and streamlines the framework for considering such condonation applications. The circular clearly lays down that applications for refund claims can be entertained, subject to satisfaction of reasonable cause for the delay and examination of merits, even after the statutory timelines have expired.”

Here’s what to do

Taxpayers seeking relief must submit a detailed condonation application explaining the reasons for delay, such as health issues, incorrect professional advice, or other bona fide circumstances, along with the return of income and supporting documentation substantiating the refund claim.

The circular also prescribes clear monetary thresholds for approval by different income-tax authorities and mandates that no condonation application for refund or loss will be entertained beyond five years from the end of the relevant AY, for applications filed on or after October 1, 2024.

Further, the circular provides that condonation applications should be disposed of within six months from the end of the month in which the application is received, subject to necessary verification.

While the remedy remains discretionary and subject to scrutiny, taxpayers with genuine and well-documented cases can evaluate this option.

For taxpayers, the best approach is simple: regularly check the Annual Information Statement and Form 26AS, respond quickly to any official communication, and correct mismatches where needed. In most cases, patience, not panic, is the only thing required.