Income Tax Refunds Delayed Due To Form 16 Mismatch: What Taxpayers Should Know

A rising number of salaried taxpayers awaiting refunds for Assessment Year 2025–26 are seeing their income tax returns remain pending for extended periods.

The Income Tax Department has temporarily paused refund processing in cases where exemption claims made in the return do not align with salary details furnished by employers in Form 16. The issue has surfaced through emails sent to taxpayers, warning that unusually large refund claims have triggered internal risk checks.

According to the communication, a “significant mismatch” has been identified between exemptions claimed in the ITR and figures reported in Form 16 (Annexure II). The department noted that such discrepancies have inflated refund amounts, leading to the returns being flagged

before refunds are processed.

Refunds paused, not rejected

Tax experts clarified that refunds have been put on hold, not denied, and will move forward once the mismatch is resolved or satisfactorily explained.

Taxpayers have been advised to check whether exemptions claimed—such as house rent allowance, leave travel allowance or other deductions—are fully supported by documents and reflected in the employer-issued Form 16. Claims made while filing the return but not backed by Form 16 appear to be a key trigger for scrutiny.

The email also carries a cautionary note that failure to act may be viewed as deliberate non-compliance, increasing the likelihood of the case being picked up for detailed scrutiny later.

“Every notice from the tax department need not be looked at with contempt. The intention is to encourage voluntary compliance so that penalty provisions are not attracted. A claim that is justified need not be reversed. The idea is to make the assessee aware of possible penalty consequences,” Ashok Mehta, CA and Managing Council Member of The Chamber of Tax Consultants, told Moneycontrol.com.

Revised return deadline

The department has highlighted December 31, 2025, as the last date to file a revised return for AY 2025–26. Taxpayers who identify an error can correct it within this window without facing additional tax consequences beyond what is already payable. Those who have already filed a revised return addressing the issue have been advised that they can ignore the email.

Why now and what should taxpayers do?

“There can be various reasons, both genuine or otherwise. In a way, this provides an opportunity to review the return of income filed,” Mehul Sheth, CA and Secretary of The Chamber of Tax Consultants, told Moneycontrol.com.

Taxpayers who receive such emails should log into the e-filing portal and compare their ITR line by line with Form 16 and Form 26AS. If the claims are valid and documents are in place, no immediate correction may be required. If not, filing a revised return sooner is the safer option.

“If someone fails to file a revised return by December 31, 2025, from January 1, 2026, an updated return becomes mandatory and, in certain situations, may attract penalty proceedings. In that sense, this email is a positive step by the income tax department,” Sheth added, as reported by Moneycontrol.com.