The Income Tax Department in India has recently intensified its scrutiny of income tax refunds, particularly focusing on high-risk claims. This move aims to curb fraudulent activities and ensure accurate tax compliance. In this article, we delve into the details of the new scrutiny process, its implications, and what taxpayers need to know to avoid delays in their refunds.
The Income Tax Department has been using advanced technology and risk management systems to identify and flag potential discrepancies in tax returns. For the 2024-25 assessment year, the department has specifically targeted high-risk refund claims, which include instances where taxpayers claim excess refunds through wrong TDS credit, underreporting of income, overstating deductions, or claiming bogus expenses.
According to an internal circular by the Income Tax Department, high-risk refund cases are identified based on certain rules and disseminated to the investigation wing for verification. The department uses email-based clusters and TAN-based clusters to identify these cases. Upon receiving these clusters, jurisdictional officers may allocate them to specific officers for integrated and comprehensive inquiries.
The process involves verifying the TDS credit claims to ensure that they are legitimate. Assessing Officers (AOs) are required to examine several aspects, including whether the TAN of the TAN cluster has been flagged in high-risk refund rules for three or more years out of eight available years. Additionally, they need to check if any penalty orders have been passed or prosecutions launched against the deductor for TDS defaults in the last three years. If any demand under Section 201 was raised for three or more years, further scrutiny is required.
Taxpayers claiming high-risk refunds are advised to be cautious. The Risk Management System (RMS) employed by the tax department analyzes various data sets to identify discrepancies. If an ITR is flagged under this process, an intimation will be sent to the taxpayer's email address and can also be viewed on the e-filing portal. The taxpayer must confirm specific claims or deductions before the refund is processed.
The RMS process is designed to detect fraud and ensure accurate return processing. It involves assessing factors such as discrepancies in data, high-value transactions, or unusual claims. If your ITR is selected under this process, it indicates that the department wants to verify certain aspects of your return to ensure the accuracy of the tax refund claim.
Tax lawyers emphasize that incomplete information or unusual claims in the ITR can also grab the attention of the income tax department's RMS. Possible reasons for selection under the risk management process may include outstanding tax demands, discrepancies in bank account details, incomplete or incorrect information in the ITR, or unusual claims that seem excessive or inconsistent with the taxpayer's profile.
Another common reason for delayed refunds is the entry of incorrect bank account details in the ITR. The tax department processes refunds through direct credit to the bank account mentioned in the tax return. If the account number or IFSC code provided is incorrect, the refund will fail, and the taxpayer will need to update the correct details and request a re-issue of the refund.
The processing of income tax returns is a multi-step process. Sometimes, returns may not be processed on time due to high volumes of filings, system upgrades, or verification checks. The tax department typically takes time to validate the return, especially if any additional information or clarification is required.
If a taxpayer claims deductions or exemptions that are not eligible, this can raise red flags during the processing of the return. The tax department may initiate further scrutiny or an audit to verify the claims, which can delay the refund.
To avoid delays in income tax refunds, taxpayers must ensure that their ITRs are accurate and complete. They should verify their returns promptly after filing and double-check their bank account details to avoid any discrepancies.
The Income Tax Department provides a tool to check the status of your refund on the e-filing portal. Different statuses are shown depending on the stage of processing. Heres a breakdown of the common refund statuses and what they mean: Refund Issued means that the tax department has processed your ITR and issued the refund; Refund Failed appears when the refund process fails due to incorrect bank account details; Return Processed with No Refund Due means that your return has been processed but there is no refund due; and Refund Adjusted Against Outstanding Demand indicates that the refund has been adjusted against previous tax liabilities.
In conclusion, the Income Tax Department's new scrutiny process aims to enhance transparency and compliance in tax refunds. Taxpayers must be vigilant about their claims and ensure that their ITRs are accurate to avoid delays in their refunds.
