What are the Reasons for Income Tax Refund Delay?

India’s taxation system is categorised in two different types, direct and indirect taxes. While indirect taxes are levied on goods and services that an individual pays for, direct taxes calculated based on an individual’s (or a corporate entity’s) income. The availability of tools like income tax calculator has only made these assessments convenient. 

As for the tax regime, it underwent several reforms and changes over the last few years. All these steps were taken to make this system of direct taxation more predictable, automated, and transparent. 

  • According to a revised estimate published by the Government of India, the targeted net Direct Tax collection amount for FY 2019-2020 stood at Rs.11.70 lakh crore. 
  • Although the actual collection figure is yet to be released by CBDT, experts estimate it to be around Rs.10.49 lakh crore, adjusting for Tax Refunds (Rs.1.84 lakh crore) from the gross collection (Rs.12.33 lakh crore).

Taxpayers can further avail income tax refund of any excess amount that they would have paid. Refunds are usually initiated when TDS, self-assessment tax amount, or an advance tax payment is greater than an individual’s tax liability. 

However, income tax returns may get delayed from time to time for various reasons. For example, many taxpayers are yet to receive their IT return for assessment year 2019-2020, even individuals who filed their tax returns in June or July. It was caused by a technical delay, as the Income Tax department was integrating a new platform (CPC 2.0) which would help in faster processing of IT returns. 

IT Refund – What are the clauses involved?

Other than the factor mentioned above, a delay in receiving IT refund can be caused by several reasons. These are calculated based on certain situations. For example, individuals who had availed home loans to purchase residential property under an affordable housing scheme would be eligible to claim tax exemption of up to Rs.3.5 lakh. This value will be disbursed only as income tax refund.

Some other factors that can cause such delays include – 

  1. Incorrect calculation –

One of the primary causes of delayed or declined IT return is incorrect tax calculation. Any discrepancy in the filed amount should be rectified by the taxpayer, which may cause additional interruptions in the process. 

While one can always calculate it manually, it is best to use online tools like income tax calculator to determine tax liability. These financial instruments offer instantaneous and accurate calculation of the same. Taxpayers can even calculate the tax savings and other advantages offered by a home loan by calculating the total liability on a calculator.

  1. Additional documents required –

At times, taxpayers may be asked for additional documentation to attest to the claimed amount before a refund request processing. It may also delay or postpone the return request. 

For example, individuals applying for tax exemption on home loans need to submit all the necessary documents to support their claimed amount. For this reason, they need to know everything about saving tax on a home loan. Failing to submit any document will cause a mismatched total, which in turn will raise an enquiry. An assessee will need to contact the assessing officer immediately to collect the list and submit the documents and collect acknowledgement of the same. 

  1. Not including eligible deduction –

Missing out on including an eligible amount that an individual may claim tax exemption for can also cause a delay in issuing IT refund. Taxpayers are offered the provision to revise their submitted refund amount and include the amount at a later date. However, it is best to avoid such issues as one can simply use an income tax calculator to determine the amount he or she is eligible for. Taxpayers should be well versed with the tax exemptions and benefits available for home loan borrowers as well for accurate estimation of such deductions. 

  1. Providing incorrect bank details –

Incorrect bank account details will cause a failure in disbursal of the refund amount to the taxpayer. In such cases, one should provide the current bank account details as well as the MICR code to the assessing officer as soon as possible. The same will be updated to the financial institution for completion of the transfer process.

Similar issues can occur if a taxpayer enters incorrect address details. If the refund amount is sent via cheque, it will get returned to the CPC if the address is incorrect or recently changed. 

It is best to learn all the necessary details before filing an income tax return, as it will eliminate chances of erroneous submission. Prospective loan applicants can check all the necessary details before signing the agreement. Herein, representatives from reputed financial institutions can help applicants understand and process the same. 

Certain reputed financial institutions also provide pre-approved offers to existing customers, which simplify the application process and help save time. Such offers are available on a range of financial products, such as home loans, loans against property, etc. You can check your pre-approved offer online by sharing only some essential details. 

Understanding the common reasons for delayed IT refund initiation and avoiding the same is important, especially for taxpayers with a substantial tax liability. Using online tools like an income tax calculator, carefully submitting the necessary documents at the time of application, and adding all the applicable reduction at the time of application can ensure an error-free process.

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