Tax refund delays in FY26 rose to a three-year high due to investigations into bogus donations and fraudulent deductions, according to the CBDT.
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Refund timelines hit three-year high
As of January 31, 2026, the average time for issuing tax refunds climbed to 35 days for the 2025-26 fiscal year (FY26), marking a three-year high. While this average remains within the official Taxpayer Charter limits, the volume of significant delays has surged. Nearly 27 lakh income tax refund applications were processed with delays beyond the normative 90-day period, the highest in a three-year period. Refund processing by the tax department starts only after the return is e-verified by the taxpayer. Usually, it takes 4-5 weeks for the refund to be credited to the taxpayer’s account.
However, FY 26 saw more delay than normal. When quizzed by the Parliamentary panel, CBDT Chairman said: “This year, it so happened that in July 2025, similar to the case that we referred to – that is, the Biryani case – verifications were carried out by the tax department in respect of bogus deductions claimed, donations, 80G, and so on.” This exercise was undertaken in July 2025.
Large-scale verification and risk identification
“What we got from that exercise was a sense that a substantial number of cases involved fraudulent or incorrect deductions being claimed. Based on that input, we undertook a similar exercise once the returns were filed,” the chairman said. For AY26, the return filing date was extended to September 16. Once the returns were filed, the analysis was carried out and correlated with the ongoing investigations.
“The numbers that emerged were large. Therefore, the issue before us was how to proceed and effect the necessary corrections. Based on the analysis, we identified high-risk refunds. Wherever we found that the quantum of refund was small, those refunds were released. Wherever the quantum was high, we held them back and nudged the taxpayer towards compliance,” the Chairman said.
Push for voluntary compliance
Rather than going for scrutiny, the CBDT nudged taxpayers to review their filed income tax returns and modify the claims, if required. “More than 50 lakh updated and revised returns have been filed. Refund claims to the extent of ₹2,000 crore were reduced through these revised and updated returns,” he said. The taxpayer, on his own, comes forward and reduces the claim of refund, and the department accepted it accordingly. “This is the new approach that we are taking in the tax department. As a result of this analysis and exercise, the refunds are now being released.”
Panel suggests AI-driven solutions
Meanwhile, the panel suggested that deploying advanced AI-driven risk-scoring algorithms could significantly help separate genuine, low-risk filings from suspicious ones instantly. “This will ensure that while deeper scrutiny is strictly applied to high-risk cases to check false claims and protect the exchequer, the vast majority of honest taxpayers receive their refunds within the timeline,” it said in a report which was tabled in the Parliament during the just-concluded budget session.
Published on April 3, 2026