Why Your Income Tax Refund May Be Reduced or Delayed

Every taxpayer feels relieved when they are supposed to receive a refund after filing their income tax return (ITR). But sometimes, instead of a full refund, you might get a smaller amount—or nothing at all. This creates confusion and concern, especially when you’re expecting your money back.

So, why does this happen? Let’s understand the reasons and how you can handle it smartly.

Income Tax Refund Can Be Reduced or Held—Here’s When

The Income Tax Department can adjust or hold your current year’s refund if there’s a pending tax demand from previous years. This is done under Section 245 of the Income Tax Act. The department does not have any time limit to adjust old dues, meaning even a demand from several years ago can affect your refund today.

How the ITR Processing System Works

Once you file your return, it is first processed by the Centralized Processing Centre (CPC) Bengaluru. If the system detects any unresolved tax demand from the past, it doesn’t automatically issue your refund. Instead, it sends the case to the Jurisdictional Assessing Officer (JAO) for verification and decision-making.

The JAO is expected to take a final call on whether to issue the refund or adjust it, within 50 days. During this time, the taxpayer is also given a chance to respond.

Why You May Get a Notice from the Income Tax Department

Many taxpayers recently received emails or notices from the department stating that their ITR is under assessment or reassessment. These notices are a part of the refund hold process, not something to panic about.

Here’s why you might receive such a notice:

• An old tax demand is still unpaid in your records.
• The department wants to adjust your current refund against this old demand.
• You are asked to respond within 21 days to accept or disagree with the demand.

If You Disagree with the Old Tax Demand

If you believe the tax demand is incorrect, you don’t have to accept it blindly. You can go to the official Income Tax e-filing portal and follow these steps:

1. Login to the portal using your PAN credentials.
2. Go to the section where the refund adjustment or tax demand notice is shown.
3. Select the option “Disagree” and provide a proper explanation.
4. Attach relevant documents like:
   • Proof that the tax has already been paid
   • Copy of an appeal or stay application
   • Any correspondence with your Assessing Officer

This process allows the department to reconsider the demand before adjusting your refund.

What If You Still Don’t Get a Solution?

In some cases, even after responding, the refund may still be reduced or not released. If you believe the decision is unjustified, you have further options:

• Send a representation to your Jurisdictional Assessing Officer (JAO) through email or post, explaining your case in detail.
• If there’s still no proper resolution, you can write to higher tax authorities.
• As a last step, you can file a writ petition in the High Court under Article 226 of the Constitution.

Key Things Written in the Tax Notice

The income tax notice generally includes the following:

• It states that your ITR has been processed under Section 143(1)(a).
• It mentions that a past year’s assessment or reassessment is pending.
• It informs you that the refund decision is subject to JAO’s confirmation under Section 245(2).
• The JAO must approve or reject the refund adjustment by logging into the department’s portal.

So, when you see this kind of notice, don’t panic. It’s a standard process that requires your attention and timely response.

What Every Taxpayer Should Keep in Mind