Refunds on Hold for Long: What the Government’s Own Data Reveals About FY26 Tax Collections
The Ministry of Finance made an important disclosure in the Rajya Sabha recently. Out of 8,79,62,234 Income Tax Returns filed for A.Y. 2025-26 till 4th February 2026, as many as 24,64,044 returns are pending for processing for more than 90 days. This single statement explains what lakhs of taxpayers across the country are already experiencing-refunds are simply not coming.
For most honest taxpayers, filing the return is not merely a compliance ritual; it is also a mechanism to recover excess taxes paid. Salaried individuals, small businessmen, and professionals carefully plan their cash flows expecting refunds within a reasonable time. However, when nearly 25 lakh returns remain unprocessed beyond 90 days, the refund cycle automatically gets disrupted.
The question is-why is this happening?
Technically, return processing is largely automated under Section 143(1). The system verifies arithmetical accuracy, TDS credits, AIS data, and mismatch issues. In normal circumstances, processing is fairly quick. Therefore, such a large backlog raises concerns beyond mere technical glitches.
The broader fiscal picture perhaps provides some context. Reports suggest that the government may miss its FY26 direct tax collection target by Rs 1.5–2 lakh crore. Slower corporate tax growth, along with various taxpayer relief measures, appears to have impacted overall revenue mobilisation. The Revised Estimate (RE) for direct taxes has already been reduced by about Rs 1 lakh crore from the original Budget Estimate, bringing the FY26 target down to Rs 24.21 lakh crore.
Now comes the real challenge. To meet even this trimmed target, the tax department reportedly needs to collect around Rs 4.77 lakh crore in the remaining weeks of the financial year. That is a massive amount to be mobilised in a short span, especially when current trends indicate moderation in collections.
In such a scenario, it is not unreasonable to assume that refund outflows may be moving slower than usual. After all, refunds represent cash going out of the exchequer. When revenue pressures increase, administrative priorities sometimes shift towards collection rather than disbursement. While there is no official statement linking the two, the timing certainly raises eyebrows.
From a taxpayer’s perspective, the issue is not about targets or fiscal arithmetic. It is about fairness and predictability. Taxes are deducted at source without delay. Advance tax instalments are payable on fixed dates. Interest under Sections 234A, 234B, and 234C is automatic and uncompromising. When the system expects discipline from taxpayers, the same standard should ideally apply to refund issuance as well.
Delay in refund is not merely an inconvenience. For small businesses and professionals, it affects working capital. For salaried individuals, it disrupts financial planning. In many cases, refunds run into lakhs of rupees. Even though interest under Section 244A is payable on delayed refunds, the compensation rarely offsets the liquidity stress caused.
Another dimension to this situation is scrutiny and verification. Increasing use of data analytics, AIS reconciliation, and risk-based processing may have led to higher instances of returns being held for deeper verification. Mismatch in TDS, reporting gaps, or high-value transactions can automatically push a return into a slower lane. Taxpayers must therefore ensure that Form 26AS, AIS, and TIS are thoroughly reconciled before filing. A small mismatch can result in a long wait.
However, the volume-24.64 lakh returns pending beyond 90 days-suggests that this is not just about isolated mismatches. It reflects systemic backlog.
The government faces a delicate balancing act. On one hand, it has extended relief measures to taxpayers and rationalised tax structures to stimulate economic activity. On the other hand, revenue buoyancy has not matched expectations, particularly on the corporate tax front. When growth slows or profits compress, direct tax collections naturally feel the impact.
If the projected shortfall of Rs 1.5-2 lakh crore materialises, fiscal management will become more challenging. The government may need to either accelerate collection drives, tighten enforcement, adjust expenditure, or rely on improved compliance measures. Each of these has economic implications.
For taxpayers waiting for refunds, the immediate takeaway is practical rather than political. First, check the status of return processing regularly on the income tax portal. Second, verify that no notice under Section 143(1)(a) or any communication is pending response. Third, ensure that bank account validation is complete and correct. Fourth, respond promptly to any mismatch intimation.
If the return is genuinely pending without any communication for over 90 days, raising a grievance through the e-Nivaran mechanism may help escalate the matter. In extreme cases, one may also consider filing a rectification request or approaching the jurisdictional officer, though in faceless systems, response channels are largely digital.
The larger issue, however, remains one of trust. India’s tax system has made tremendous strides in digitisation, transparency, and data integration. Filing has become easier. Compliance interfaces are smoother. But timely refund processing is equally critical in sustaining taxpayer confidence.
When nearly 8.8 crore returns are filed, it reflects widening tax participation and improved compliance culture. That is a positive sign for the economy. Yet, if lakhs of compliant taxpayers feel that their legitimate refunds are being held up, it risks creating dissatisfaction.
Fiscal targets are important. Revenue mobilisation is necessary for nation-building. But so is maintaining the credibility of the tax administration.
As the financial year draws to a close, all eyes will be on two numbers-final direct tax collections and the speed at which pending refunds are cleared. For now, the Rajya Sabha data tells a clear story: the backlog is real, and taxpayers may need to brace for a longer wait this year.
