The Income Tax Department has responded to a surge of taxpayer complaints regarding delayed refunds for the Assessment Year 2025-26, attributing the hold-ups to a high volume of ineligible claims. The department has identified instances where taxpayers have claimed deductions or exemptions they are not entitled to, leading to an understatement of income.
NUDGE Campaign Alerts Taxpayers
Under its "Non-intrusive Usage of Data to Guide and Enable (NUDGE)" campaign, the department has proactively reached out to several lakh taxpayers via SMS and email. These communications highlight discrepancies found using advanced data analytics under the department's risk management framework.
The flagged issues primarily involve claims for bogus donations to Registered Unrecognised Political Parties (RUPPs) or other charitable institutions, mismatches between Tax Deducted at Source (TDS) and the Annual Information Statement (AIS), non-disclosure of foreign assets and income, and cases where incorrect or invalid PANs of donees have been quoted.
The department has advised all concerned taxpayers to review their filed Income Tax Returns (ITRs), verify the correctness of their deduction and exemption claims, and revise their returns if necessary. The deadline for filing this revised return is December 31, 2025.
Scrutiny on High-Value Claims and Refund Status
Sources indicate that the department has been scrutinizing returns with high-value deductions and refunds above Rs 20,000. However, the process of issuing refunds has now commenced, and taxpayers can expect to see updates in their accounts within the next 10 days.
Official data reveals a 13.52% drop in refunds issued between April 1 and December 17 of this financial year compared to the same period last year. This decline aligns with the increased verification efforts.
Despite the NUDGE campaign, many taxpayers and Chartered Accountants have taken to social media to report that their refunds remain stuck, even without receiving any official communication from the department about discrepancies.
Revised vs. Updated Returns: Key Deadlines
The department clarified the distinction between revised and updated returns. A revised return for AY 2025-26 can be filed until December 31, 2025, which is three months before the end of the assessment year. So far, over 15 lakh ITRs have already been revised for this assessment year.
Separately, an updated return (ITR-U) can be filed within 24 months from the end of the relevant assessment year, even if no return was filed initially, upon payment of a penalty. For earlier years (AY 2021-22 to 2024-25), over 21 lakh taxpayers have updated their ITRs this financial year, paying over Rs 2,500 crore in additional taxes.
Note: The Finance Act 2025 has extended the timeline for filing updated returns from 24 months to 48 months, effective from Assessment Year 2026-27.
With the NUDGE messages sent in December, some taxpayers and professionals are now requesting an extension of the revised ITR filing deadline by a month to January 31, 2026. The department has not yet commented on this request.
The IT Department has assured that taxpayers whose deduction or exemption claims are genuine and correctly made in accordance with the law need not take any action. The current drive is aimed at encouraging voluntary compliance and correcting errors before initiating formal inquiries.
