Income-tax refunds declined in FY26, with CBDT data showing refunds of ₹3.11 lakh crore as of January 11 compared with ₹3.75 lakh crore in the corresponding year-ago period — a decline of 16.92 per cent year-on-year.
Senior tax officials said the refund moderation reflects a broader transition underway in the tax system. Rationalised Tax Deducted at Source (TDS) provisions, rising adoption of the new income-tax regime and data-driven compliance interventions are reducing excess tax payments and correcting incorrect claims earlier in the process, according to a Moneycontrol report.
In this environment, refund growth is becoming a weaker standalone indicator of administrative efficiency, they said, as tax payments align more closely with final liability.
The officials said refunds were moderated partly because automated data checks flagged mismatches in certain returns, prompting closer scrutiny of claims before refunds were issued. Certain refund claims were flagged as inconsistent through data analysis.
Officials said nudge campaigns conducted over the past two years yielded an additional tax implication of about ₹9,640 crore, comprising ₹8,800 crore from non-foreign-asset compliance interventions and ₹840 crore linked to foreign income and asset disclosures. Of the ₹8,800-crore impact, roughly ₹1,750 crore arose from taxpayers reducing refund claims.
A senior government official cautioned against reading refund trends without accounting for structural changes. “Refund growth has to be seen in perspective. It cannot be compared mechanically with last year’s numbers because several structural factors are involved,” the official told Moneycontrol.
Officials stressed that refund processing has remained largely uninterrupted.
“Refunds were never stopped across the board. Only cases flagged through data analytics were taken up for verification. It would be incorrect to suggest that refunds are being withheld. If a claim is correct, the system has the capacity to issue refunds within hours or days,” the official added.
One of the primary drivers of lower refunds was the rationalisation of Tax Deducted at Source (TDS) provisions.
A sharp migration of taxpayers to the new income-tax regime also contributed to lower refund claims.
