Tax Refund Mistakes: Impact & Solutions

Tax Refund Mistakes: Impact & Solutions

Most income tax refunds in India fail not because of a system breakdown — they fail because of five or six entirely preventable input errors: a closed bank account, an unverified ITR, an AIS mismatch left unaddressed, or a Section 245 adjustment notice that expired without a response. Once the CPC at Bengaluru triggers a refund instruction to NSDL, the automated machinery is fast and reliable. The bottleneck is almost always upstream — in what you filed, or failed to act on, before processing ever began. Fix the inputs; the refund follows.

The Eight Mistakes That Derail Most Refunds

Before diving into fixes, it helps to see the full landscape of what goes wrong. In practice, the vast majority of delayed or lost refunds trace back to one or more of these eight errors:

1. Bank account not pre-validated or ECS-disabled — the refund is pushed but immediately returned by the bank
2. PAN–Aadhaar not linked — PAN becomes inoperative under Section 139AA and refunds are withheld
3. Mismatch between ITR figures and AIS/TIS/26AS data — CPC processes the return with an addition under Section 143(1), converting a refund into a demand
4. ITR not e-verified within 30 days — the return is treated as never filed; no refund can issue on an invalid return
5. Section 245 adjustment against old demands — your FY 2026-27 refund is silently applied against a demand from AY 2022-23 or earlier
6. Capital gains computed incorrectly — wrong cost of acquisition, missing indexation, or wrong holding period flips a refund into a tax liability
7. Deductions claimed without documentary basis — CPC disallows under Section 143(1)(a), shrinking or eliminating the refund
8. Non-response to CPC notices — an intimation or notice that lapses triggers demand creation or penalty proceedings

Each of these has a specific fix. Work through them in the order they affect your ITR, not in the order they become visible to you.

Mistake 1: Wrong or Unvalidated Bank Account

The Income Tax Department credits refunds only to a bank account that is pre-validated on the e-filing portal, ECS-enabled for direct credit, registered in a name that matches your PAN records exactly, and carrying a current, active IFSC code.

The IFSC mismatch problem is more common than most people realise. Several public sector bank mergers — Bank of Baroda absorbing Vijaya Bank and Dena Bank, the SBI associate bank consolidations — retired old IFSC codes. If you filed using an IFSC from a merged branch, the refund will bounce, appear as "Refund Returned by Bank" in your portal, and sit with the department until you raise a reissue request.

Step-by-step fix:

1. Log in at incometax.gov.in → My Profile → Bank Account
2. Check that your primary account shows "Pre-validated" and "ECS Enabled"
3. If ECS shows "Not Enabled," contact your bank to activate it, then re-validate on the portal
4. If the account is closed or the IFSC is retired, add a new account and pre-validate it before filing
5. If the refund has already bounced: go to Services → Refund Reissue → select the relevant AY → choose a fresh pre-validated account → submit

Reissue requests typically result in credit within 10 to 20 working days of submission.

Mistake 2: PAN–Aadhaar Not Linked — The Inoperative PAN Trap

Under Section 139AA of the Income-tax Act 1961, every individual eligible for Aadhaar must link PAN with Aadhaar. If PAN is inoperative, TDS is deducted at a higher rate under Section 206AA, interest on refunds under Section 244A is not credited, and — critically — the refund itself is withheld until PAN is reactivated.

How to check your PAN status: Go to incometax.gov.in → Quick Links → Verify Your PAN → enter PAN, name, and date of birth. If PAN is inoperative, the portal flags it explicitly.

Linking fee: A late fee of Rs. 1,000 is payable under Section 234H. Pay via Challan 280 under Minor Head 500 on the portal, then complete the link under Quick Links → Link Aadhaar.

After linking, PAN reactivation takes approximately 30 days. If you are planning to file for AY 2027-28 and your PAN is inoperative, link immediately — a refund determined against an inoperative PAN simply waits in the system.

Mistake 3: AIS / TIS Mismatch With Your ITR

The Annual Information Statement (AIS) and the Taxpayer Information Summary (TIS) are the two most important documents to download before filing for AY 2027-28. AIS contains raw transaction data — salary, dividends, interest, mutual fund redemptions, securities transactions, GST turnover — reported by third parties against your PAN. TIS is the aggregated, deduplicated version that CPC actually uses when processing your ITR under Section 143(1).

What goes wrong: When income reported in your ITR is lower than what AIS/TIS shows, CPC's automated processing adds the difference back as income under Section 143(1)(a)(vi) — "mismatch of information." A refund of Rs. 45,000 can become a demand of Rs. 12,000 in one processing cycle.

How to fix it before filing:

1. Download AIS from incometax.gov.in → Services → Annual Information Statement
2. Download TIS from the same page and review the processed value column — this is what CPC will use
3. Cross-check every line against your own records: salary slips, bank interest certificates, Form 16, dividend statements, broker contract notes
4. If a line in AIS is wrong (e.g., a transaction attributed to your PAN that belongs to someone else), raise feedback directly in AIS: click the transaction → Feedback → "Information is incorrect" or "Information relates to another person"
5. If you have already filed and the mismatch is material, file a revised return under Section 139(5) before 31 December 2026 for AY 2027-28

If you receive a Section 143(1) intimation after processing:

• You have 30 days from the intimation date to respond under e-Proceedings on the portal
• If the addition is a clerical error, file a rectification under Section 154
• If the income was genuinely omitted, pay the tax and interest under Section 234B/234C before responding

Mistake 4: ITR Not E-Verified Within 30 Days

This is the most punishing of all refund mistakes because it renders your entire return legally invalid. A return filed but not e-verified within 30 days of filing is treated as never submitted — there is no refund, no processing, and the filing date is deemed to be the date of actual verification, which may attract a late-filing fee under Section 234F.

CBDT Notification No. 5/2022 dated 29 July 2022 reduced the verification window from 120 days to 30 days. Many taxpayers — especially those who rely on their CA to file but verify personally — are still unaware of this change.

Verification methods available:

• Aadhaar OTP sent to the mobile number registered with UIDAI — fastest option
• Electronic Verification Code (EVC) via net banking or ATM
• Bank account EVC via pre-validated account on portal
• Demat account EVC
• Digital Signature Certificate (DSC) — mandatory for companies and audit-required assessees

Best practice: E-verify immediately after filing. The portal prompts you to verify on the success screen — do it then, before closing the tab.

If you missed the 30-day window: File a condonation of delay request under Section 119(2)(b) at incometax.gov.in → Services → Condonation Request. Once condoned, the return is treated as valid and processing — including any refund — can proceed from the condonation date.

Mistake 5: Section 245 Adjustment — The Silent Refund Killer

Section 245 of the Income-tax Act 1961 permits the department to adjust a current-year refund against outstanding demands of earlier years before crediting any balance to you. The adjustment is not automatic — the department must issue an intimation under Section 245 and give you 30 days to respond. The problem is that taxpayers treat this intimation as informational rather than actionable, and 30 days later the adjustment is confirmed by default.

How the situation typically unfolds: You file for AY 2027-28 with a refund of Rs. 80,000. An unresolved Section 143(1) demand from AY 2022-23 of Rs. 58,000 sits in the system — perhaps from a TDS credit that was disputed and never closed. CPC issues a Section 245 intimation by email. You either don't see it or assume it will resolve itself. After 30 days, Rs. 58,000 is adjusted and Rs. 22,000 is credited to your bank. You receive no further notice. You spend the next three months figuring out why your refund was short.

How to dispute a Section 245 adjustment:

1. Log in → e-Proceedings → Response to Notice under Section 245
2. Review the demand details — verify the Assessment Year, demand amount, and current status
3. If already paid: respond with challan details and attach proof of payment
4. If the demand is disputed: select "Demand is Disputed" and state the grounds; separately file a rectification under Section 154 or an appeal under Section 246A as appropriate
5. If the demand is correct: pay it and respond; the balance refund should process within 15 to 20 working days

Never let a Section 245 intimation lapse. Even a disputed demand must be responded to within 30 days — silence equals acceptance in law.

Section 244A: The Interest the Department Owes You

When the department delays crediting a refund beyond the statutory timeline, it owes you interest under Section 244A at 0.5% per month or part thereof on the refund amount.

When interest starts running:

• Where the return is filed on or before the due date (31 July 2027 for most individuals filing for AY 2027-28): interest runs from 1 April 2027 to the date of the refund order
• Where the return is filed after the due date: interest runs from the date of filing to the date of the refund order

When interest is denied: The department does not pay Section 244A interest for any period of delay attributable to the assessee — periods during which the return was unverified, periods of non-response to notices, or delays caused by a rectification or appeal filed by the assessee.

Practical note: CPC does not always compute Section 244A interest correctly. Once your refund arrives, calculate the interest due yourself: (Refund amount × 0.5% × number of months from 1 April 2027 to refund date). If CPC has short-credited, file a rectification under Section 154 specifically for the interest shortfall. Maintain a dated record of your filing date, e-verification date, processing date, and refund credit date for this purpose.

Worked Example: When One Unchecked AIS Line Costs Rs. 47,000

Consider Priya, a salaried professional in Mumbai filing for AY 2027-28. Her Form 16 shows gross salary of Rs. 18,60,000 and TDS deducted of Rs. 2,14,000. She also has savings bank interest of Rs. 12,500 (within the Section 80TTA limit) and fixed deposit interest of Rs. 48,000 with TDS of Rs. 4,800 deducted by the bank.

What Priya did: She filed ITR-1 in haste, relying on Form 16 alone. She did not download AIS. Her AIS also shows a dividend of Rs. 36,000 from an equity mutual fund received in March 2027 — an amount she had forgotten about entirely. She reported total income of Rs. 19,20,500, omitting the Rs. 36,000 dividend.

What CPC does on Section 143(1) processing: CPC detects Rs. 36,000 of dividend income in TIS not included in the return. It adds Rs. 36,000 to income and recomputes tax. At Priya's effective slab (30% + cess = 31.2%), the additional tax is Rs. 11,232. Instead of a refund of Rs. 35,568, Priya receives an intimation demanding Rs. 11,232 — a swing of Rs. 46,800.

The correct fix (before the intimation): Had Priya spent 15 minutes on AIS before filing:

• She would have seen the Rs. 36,000 dividend entry under "Dividend" in AIS
• Included it in the return under "Income from Other Sources"
• Claimed the full TDS credit of Rs. 4,800 on the FD interest
• Filed a clean return and received a refund of approximately Rs. 35,568 within 4 to 6 weeks of processing

The fix after the intimation: Pay Rs. 11,232 plus applicable interest under Section 234B, respond to the intimation within 30 days, and accept the revised computation. Priya also loses any Section 244A interest entitlement for the period between the intimation and her response.

Lesson: One unchecked AIS line cost Priya nearly Rs. 47,000 in cash-flow reversal and administrative effort. The AIS download takes three clicks and 15 minutes of reconciliation.

Refund Reissue: Step-by-Step When the Credit Bounces

When your refund is returned by the bank, the portal shows "Refund Returned" against the relevant Assessment Year. Follow this sequence to get it re-credited:

1. Log in to incometax.gov.in
2. Navigate to Services → Refund Reissue
3. Select the Assessment Year (e.g., AY 2027-28) for which the refund was returned
4. Note the communication reference number shown — this confirms the original refund instruction was issued
5. Select the bank account for re-credit — it must already be pre-validated and ECS-enabled. If your current account has issues, add a new one under My Profile → Bank Accounts first
6. Submit and note the acknowledgement number
7. The instruction is forwarded to NSDL; credit typically appears within 10 to 20 working days

If the reissue fails again, do not repeat the same account. Diagnose the bank-side issue (IFSC verification, account status, name match) before submitting a second reissue. A second failure with the same account puts the refund back in queue without escalation priority.

Tracking Refund Status: The Two Channels

Channel 1 — incometax.gov.in: Log in → e-File → Income Tax Returns → View Filed Returns. The status against each AY progresses through: Successfully Submitted → Verified → Under Processing → Processed (with either "Refund Determined" or "Demand Determined") → Refund Issued → Refund Returned (if the bank returned the credit). The portal also displays the bank account number and IFSC to which the credit was directed — use this to identify exactly why it bounced.

Channel 2 — NSDL TIN Refund Status: Go to tin.tin.nsdl.com → Services → Income Tax Refund Status. Enter PAN and Assessment Year. This tracker is updated by NSDL directly and shows whether the credit was sent to the bank, returned, or is still pending an instruction from CPC.

Channel 3 — e-Nivaran (for grievances): If your return is processed, refund is determined, but it hasn't arrived after four weeks: log in → Dashboard → Grievances → Submit Grievance → Income Tax → Refund → describe the issue with the intimation reference. e-Nivaran routes the grievance to CPC and typically generates a response within 15 working days.

Common Pitfalls to Avoid in AY 2027-28

These are the errors that recur every filing season:

• Filing the wrong ITR form. If you had capital gains, foreign income, or more than one house property, ITR-1 is not applicable. An incorrectly filed return is processed on the income as declared — you receive no alert until a scrutiny notice or AIS mismatch surfaces.

• Claiming the Section 87A rebate against special-rate income. The rebate of up to Rs. 25,000 under the new tax regime is not available against income taxed at special rates — short-term capital gains under Section 111A or long-term capital gains under Section 112A. CPC will disallow the rebate automatically and raise a demand.

• Entering "0" in TDS credit columns. CPC cannot credit TDS that is not claimed in the return's TDS schedule. Cross-check your 26AS and AIS against every TDS entry before submission.

• Reporting salary net of deductions in the salary schedule. The ITR salary schedule requires the gross salary figure; deductions (HRA, standard deduction of Rs. 75,000 under the new regime for FY 2026-27, professional tax) are claimed separately. Entering a net figure creates a mismatch with Form 16 and AIS.

• Missing the revised return deadline. For AY 2027-28, Section 139(5) allows a revised return up to 31 December 2026. After that date, errors can only be addressed through the narrower Section 154 rectification route, which applies only to apparent mistakes in the order — not to income omitted in the original return.

• Ignoring SMS and email from CPC. The department sends notices to your registered email and mobile. If these are outdated, update them at My Profile → Contact Details immediately. Under the Income-tax Act, a notice sent to the registered address is served, regardless of whether you actually saw it.

Preventive Habits for FY 2026-27 / AY 2027-28

Build these into your annual routine — not just at filing time, but year-round:

• April 2027: Download AIS and TIS as soon as they update for FY 2026-27. Reconcile every entry before computing your tax liability. Raise AIS feedback on incorrect entries promptly — the earlier you raise feedback, the earlier the TIS processed value corrects.
• Before 31 July 2027: File your ITR. Early filers enter CPC's processing queue before the July backlog peaks; refunds for early-filed returns consistently arrive faster.
• On filing day: E-verify immediately — not the next day, not after checking with your CA. The portal prompts you on the success screen. Do it then and download the acknowledgement (ITR-V).
• Day 1 after filing: Confirm your pre-validated bank account is still active, ECS-enabled, and carrying a current IFSC. Banks periodically update IFSC codes; what was valid last year may not be valid today.
• Within 30 days of processing: Read the Section 143(1) intimation carefully. If it raises a demand, respond within the deadline. If it confirms a refund, track it via the two portal channels above.
• Ongoing: Check your outstanding demand balance under My Account → Outstanding Demand every quarter. Demands from prior years accrue interest under Section 220(2) at 1% per month — and will surface as a Section 245 adjustment the moment a refund is due.

Key Takeaways

• AIS/TIS reconciliation is non-negotiable for AY 2027-28. Every line must be cross-checked before filing. A mismatch you ignore before filing becomes a demand you fix after processing — always at a higher cost of time and money.
• E-verify within 30 minutes of filing, not within 30 days. The window exists as a safety net, not a default timeline. An unverified return is legally a non-return with no refund entitlement.
• Section 245 intimations require a response, not a wait. Even a disputed demand must be contested within 30 days. Silence is acceptance.
• Section 244A interest is a legal entitlement, not a discretionary payment. Calculate it yourself and file a rectification under Section 154 if CPC short-credits it.
• Bank account hygiene is the most overlooked last-mile issue. Pre-validate, ECS-enable, and verify the IFSC every year before filing — not after a refund bounces.
• The revised return under Section 139(5) is your primary error-correction tool through 31 December 2026 for AY 2027-28. Use it proactively when you catch an error. Section 154 rectification is narrower and cannot substitute for income omitted in the original return.
• PAN must be operative before filing. If PAN–Aadhaar is unlinked, pay the Rs. 1,000 fee under Section 234H, link, wait 30 days for reactivation, and then file. A refund against an inoperative PAN waits indefinitely.