No Refund on ITR AY 2025-26 Until Income Tax Department Completes Investigation

Snippet: The Income Tax Department of India has held up refunds for several taxpayers for AY 2025-26 due to ongoing investigations. Here's a detailed breakdown of why refunds are delayed, who is impacted, and how to track or resolve your refund status.

Date: July 2, 2025
Author: Taza Vibes

Introduction: Income Tax Refunds for AY 2025-26 Under Scrutiny

As lakhs of Indian taxpayers eagerly await their Income Tax Refunds for the Assessment Year 2025–26, the Income Tax Department has issued a clarification: “Refunds will not be processed for certain ITRs until investigations are complete.” This unexpected update has left many salaried individuals, freelancers, and small business owners puzzled and concerned.

The delay has been attributed to ongoing scrutiny under Section 143(1) and Section 143(2), where selected returns are flagged for mismatch, suspected over-claiming of deductions, or discrepancies in TDS credits. While not everyone is affected, those under the radar have been notified via the IT portal or SMS/email alerts.

What Does the Notification Mean?

The message many taxpayers are receiving on the Income Tax e-filing portal reads:

“Refund on your ITR for AY 2025-26 is currently on hold pending further verification under scrutiny guidelines.”

This essentially means your return has been marked for detailed review due to inconsistencies or patterns that triggered the scrutiny mechanism.

Who Is Affected?

Taxpayers who claimed unusually high refunds
Returns with discrepancies in income vs TDS details
Self-employed individuals declaring losses
Multiple Section 80 deductions (80C, 80D, 80G) under scrutiny
Professionals or freelancers declaring minimal income

Why Is the Income Tax Department Investigating Refunds?

The CBDT (Central Board of Direct Taxes) announced a focus on curbing fraudulent or overstated claims. Recent reports indicate a rise in manipulated claims, especially related to fake donations, exaggerated HRA, and fabricated rent receipts. In addition, the department has integrated data from GST returns, bank accounts, and AIS (Annual Information Statement) to identify mismatches.

Key Investigation Triggers:

Claiming deductions without valid documentation
Mismatched TDS from Form 26AS/AIS
High refund amount disproportionate to income
Multiple revisions of the same return
Returns filed with new or unverified CA credentials

Official Statement from the Income Tax Department

On July 1, 2025, the IT Department released an official press note:

“To maintain transparency and taxpayer trust, refunds related to returns flagged for investigation will be temporarily held. We urge taxpayers to cooperate in submitting supporting documents, if requested. Genuine taxpayers will receive their refunds once verification is complete.”

This step is also in line with the government’s broader crackdown on financial fraud and revenue leakage through digital filing systems.

How to Check If Your Refund Is Delayed?

Here’s how you can check if your refund is under scrutiny:

Step-by-step process:

Visit incometax.gov.in
Login with PAN and password
Go to “e-File” → “Income Tax Returns” → “View Filed Returns”
Check the status of AY 2025-26
If status shows “Under Processing” for long or says “Under Scrutiny,” you are likely impacted

You may also receive notifications via:

SMS from sender ID: ITDEFL
Email from: donotreply@incometax.gov.in

What You Can Do If Your Refund Is Held?

1. Don’t Panic

Being flagged does not mean you’ve done something wrong. The system may have raised a query, and a manual review is in progress.

2. Check for Communication

If the department needs documents, they will send a request. Monitor your inbox on the IT portal under “Pending Actions.”

3. Submit Supporting Documents

Proof of deductions (80C/80D receipts, rent receipts)
Form 16/16A, AIS/TIS data matching
Donation receipts with PAN details

4. File a Grievance (if needed)

You can raise a ticket under the “Grievance” tab for clarification or refund status updates.

Timeline for Refund Processing

Typically, refunds are processed within 7-21 days of ITR processing. However, in scrutiny cases, it may take 30–90 days or more, depending on document verification and officer workload.

Expert Opinions and CA Advice

We spoke to Chartered Accountant Ravi Bhushan from Delhi:

“We’ve seen a sharp rise in refund delays this year. Many salaried clients with HRA, LIC, and education loan claims are being asked for documentation. My advice: be transparent, retain all proofs, and stay patient.”

Income Tax Department's Enhanced Tools in 2025

1. AI-powered ITR Scanner

The department now uses AI and ML to identify anomaly patterns in deductions and income declarations.

2. AIS/TIS Integration

All third-party transactions including bank interest, stock trades, credit card bills, and property purchases are now automatically pulled into the taxpayer's digital file.

3. PAN-Aadhaar Cross-Matching

Unlinked or mismatched PAN-Aadhaar data can cause delays or scrutiny flags.

Tips for a Smooth ITR Filing in AY 2025-26

Ensure all incomes are declared, including FD, crypto, and mutual fund redemptions
Cross-check Form 26AS, AIS, and Form 16 before filing
Attach genuine proofs for deductions — rent agreement, receipts, medical bills, etc.
Avoid filing dummy donation claims or exaggerated home rent
Use verified CA or tax experts if unsure

Public Reaction: Frustration and Acceptance

Social media has been abuzz with reactions from affected taxpayers. Some are angry, while others support the initiative against fake refund claims.

@FinWokeUser: “Filed ITR in May, still no refund! Got SMS saying under review. This is ridiculous.”

@TaxWithTruth: “If this helps root out frauds, I’m okay with a delay. But CBDT should speed up genuine refunds.”

What’s Next for Taxpayers?

The CBDT is expected to release further clarifications about refund status by mid-July. Meanwhile, genuine taxpayers are advised to wait, monitor their portal for any notices, and comply promptly with document requests.

Taxpayers can also contact the Income Tax Helpline at 1800-103-0025 for additional assistance or escalate issues via the CPGRAMS portal if unjustified delay continues.

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Conclusion: Transparency and Diligence Are the Way Forward

The message is clear — while digital ITR filing has become fast and easy, it’s also under sharper surveillance. For taxpayers, this is a call for honesty, proper documentation, and careful planning. If your refund for AY 2025–26 is on hold, remain patient and stay engaged with the process. Transparency and prompt compliance are your best allies in ensuring resolution and getting what’s rightfully yours.

Taza Vibes

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