Slower Tax Refunds After ITR Filing: Understanding the ₹700 Crore False Exemption Crackdown

Sep 20, 2025

—

Indian taxpayers who filed their Income Tax Returns (ITRs) this year may have noticed that refunds are taking longer than usual. The main reason: the Income Tax Department has detected massive false exemption claims amounting to nearly ₹700 crore, mostly under the old tax regime. This discovery has led to tighter scrutiny and extended processing times for many returns.

This article breaks down the entire situation in detail, explains why refunds are delayed, which taxpayers are most affected, and what you can do to ensure smoother processing.

What Triggered the Delay?

The Income Tax Department’s risk analysis revealed thousands of ITRs with exaggerated or fabricated claims for deductions and exemptions. The scale of false claims — pegged at ₹700 crore — prompted the department to initiate stricter verification before issuing refunds.

This means even genuine returns may now face additional checks if they resemble high-risk patterns.

Old Regime Under the Scanner

Most of the false claims were filed under the old tax regime, which allows a larger number of deductions and exemptions compared to the new regime. High-income earners (above ₹20 lakh per year) were found to be the biggest contributors to these irregularities.

Reasons Behind Refund Delays

Reason	Explanation
False/Inflated Exemptions	Detection of bogus claims under the old regime has triggered a review of similar cases.
Pending Assessments	Refunds may be held back if previous years’ returns are unresolved or demand notices exist.
Mismatch of Data	Differences between your ITR and Form 26AS / AIS (e.g. TDS, income details) can trigger manual verification.
Complexity of Return	Returns with multiple income sources, capital gains, or business income (ITR-2/ITR-3) take longer to process.
Bank Verification Issues	Refunds require pre-validated bank accounts; any mismatch in details slows down processing.

Who Is Most Affected

Taxpayers filing under the old tax regime with multiple exemptions.
High earners (₹20 lakh+) with complex returns.
Those with past assessments, pending notices, or outstanding tax dues.
Businesses and professionals claiming large deductions under various sections.

How to Avoid Refund Delays

Step	Why It Helps
File accurate and truthful claims	Reduces the chance of being flagged for verification.
Match your data with Form 26AS and AIS	Ensures income and TDS details are consistent.
Pre-validate your bank account	Ensures refunds go to the correct account without delays.
E-verify your return promptly	Returns are processed only after verification.
Clear any outstanding tax demands	Prevents automatic withholding of refunds.

Impact on Taxpayers

Short-term inconvenience: Refunds that used to arrive within days may now take weeks or months if flagged for scrutiny.
More documentation: You may receive notices seeking proof for deductions claimed.
Interest on delayed refunds: Section 244A provides for interest on refunds delayed beyond the prescribed period, offering some relief to genuine taxpayers.

Broader Implications

This crackdown signals a shift toward stricter enforcement by the Income Tax Department. While it may inconvenience honest taxpayers in the short run, the long-term outcome should be a fairer system with fewer revenue leakages. It also underlines the importance of accurate tax compliance and proper record-keeping.

Frequently Asked Questions (FAQs)

Q1. Will all refunds be delayed?
No. Simple, accurate returns with no high-risk deductions are still processed quickly. Delays mainly affect returns flagged for additional scrutiny.

Q2. Can I be penalised for genuine claims?
No, genuine claims are honoured. However, you may be asked to provide documentation to support your exemptions.

Q3. How long could delays last?
Processing time can vary from a few days for simple cases to several weeks or months for flagged returns.

Q4. How can I check the status of my refund?
You can log in to the income tax e-filing portal to check refund or demand status.

Q5. Do I get interest on delayed refunds?
Yes. If a refund is delayed beyond the statutory period, you’re entitled to interest under Section 244A of the Income Tax Act.

Key Takeaways

₹700 crore in false exemption claims detected, mainly under old regime.
Stricter verification of returns to reduce fraudulent refunds.
Refund delays for returns flagged for additional checks.
Best approach: file accurate, well-verified returns and keep documentation handy.

Conclusion

The Income Tax Department’s crackdown on false exemption claims is a clear message to taxpayers about the importance of truthful declarations. While genuine filers may face temporary delays, these measures will ultimately improve the integrity of the refund system. By filing accurate returns, verifying data, and keeping bank details updated, you can reduce your chances of facing refund delays.

Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Taxpayers should consult a qualified professional for guidance specific to their situation.