India Tax Refunds Delayed: 61 Lakh Returns Unprocessed, Wait Till 2026

Tax Department Faces Massive Refund Backlog\nLakhs of Indian taxpayers are facing extended waits for their income tax refunds for Assessment Year (AY) 2025-26. As of January 6, 2026, the Income Tax Department website shows approximately 61 lakh income tax returns are yet to be processed. This substantial backlog means many individuals will continue checking their bank accounts for refunds well into next year.\n\n### The Processing Window\nExperts confirm the tax department operates within legal parameters, holding a significant processing window. According to Vivek Jalan, Partner at Tax Connect Advisory Services, Section 143(1) grants the department until December 31, 2026, to process returns filed for the Financial Year 2024-25. This one-year period after initial filing deadlines means delays are legally permissible. There are typically no penal consequences for the department during this time, beyond paying simple interest at 0.5% per month on the refund amount under Section 244A of the Income-tax Act, 1961.\n\n### Reasons for the Backlog\nJignesh Shah, Partner – Direct Tax at Bhuta Shah & Co LLP, notes that while nearly 7.80 crore ITRs have been processed, the current unprocessed volume exceeds typical levels. Several factors contribute to this slowdown. Discrepancies between filed return data and departmental records like Form 26AS and AIS are leading to prolonged verification. High-value returns, those claiming large exemptions, or complex income structures are undergoing deeper risk-based scrutiny, naturally extending processing times. The delayed release of ITR forms and an extended filing deadline also compressed the department's operational timeline. Furthermore, structural changes in new ITR forms, backend portal upgrades, and NUDGE campaigns focused on foreign assets and fake donation claims have added layers of complexity and delay. Taxpayer errors, such as failure to e-verify or providing invalid bank accounts, also hold up processing.\n\n### Who Faces the Longest Waits?\nDelays are not uniform. While salaried individuals often experience quicker processing, those claiming substantial refunds or deductions beyond their Form 16 are more prone to extended waits. Senior citizens, barring specific exemptions, and taxpayers with significant or mismatched claims face similar issues. Cases with "no demand, no refund" are generally processed faster.\n\n### Interest on Delayed Refunds\nThe Income Tax Act does provide for interest on delayed refunds under Section 244A. Simple interest at 0.5% per month is payable from April 1 of the assessment year if the return was filed on time, or from the date of filing if it was belated, until the refund is issued. However, this interest is only applicable if the refund amount is at least 10% of the total tax liability and the delay is not attributable to the taxpayer's actions or omissions.