Differences in form 16 trap income tax refunds: What taxpayers need to know
Refunds have been temporarily held back pending reconciliation of discrepancies in statements reported on the income tax returns and the salary details reflected in tax form 16, causing taxpayers to check and correct discrepancies
Reason Behind Refund Delays
The Income Tax Department is holding the processing of some income tax refunds based on discrepancies that have been found between the deductions or exemptions allowed in the Income Tax Returns (ITRs) and the information provided by the employer in Form 16. This has been seen mainly for Assessment Year 2025-26, due to high amounts of refunds that have triggered alerts during auto verification.
According to official notification sent to affected taxpayers, the hold-up in the processing of tax refunds is a process related to a risk assessment. It does not necessarily mean that the refund application is disqualified, as it only reveals that there is a need for clarification of the refund application that does not conform with the income reported by the employer.
Taxpayers are advised to cross-check their ITR data with Form 16 as well as Form 26AS, particularly in relation to exemptions like House Rent Allowance (HRA) and Leave Travel Allowance (LTA) or other deductions. In some instances, there could be errors in reporting by employers or where individuals claim further deductions at the time of submitting tax returns.
Tax consultants draw attention to the fact that taxpayers can nevertheless submit a revised return in the event of a mistake being identified. For taxpayers whose AY 2025-26 returns were due, they can submit a revised return until December 31, 2025, without penalties. Taxpayers who have already updated their returns can ignore the warning emails.
However, if these notices indicating discrepancies are ignored, there may be a possibility that tax officers might scrutinize such accounts in the future and impose fines or additional taxes. Chartered accountants suggest that discrepancies on the income tax e-filing website should be checked and all amounts reconciled with third-party statements. This will assist in resuming refund processing and also enable tax returns to be filed in a transparent manner.
