Income Tax Department Cracks Down on Refund Mismatches, Issues Surge of Alerts to Taxpayers

New Delhi: The Income Tax Department has significantly intensified scrutiny of income tax returns for Assessment Year (AY) 2025-26, issuing a record number of alerts to taxpayers over discrepancies in refund claims. The move comes as part of the department’s automated risk management framework, which has flagged cases where refunds claimed are unusually high and do not match official records.

As a result, the processing of several Income Tax Returns (ITRs) has been put on hold, prompting taxpayers to urgently review their filings.

Why the Income Tax Department Is Sending Alerts

According to tax professionals, there has been a sharp rise in alerts highlighting possible misreporting or omissions in tax returns. The most common triggers include:

  • Form 16 Mismatches: Differences between exemptions claimed in the ITR and salary details reported by employers in Form 16 (Annexure-II).

  • Suspicious Deductions: Claims involving fake political donations or questionable donations to trusts.

  • Non-Disclosure of Assets: Failure to declare foreign assets or income.

  • General Errors & Omissions: Incorrect claims detected through data analytics and risk assessment tools.

Alerts, Not Notices — But Risks Are Serious

The department has clarified that these communications are “alerts” and not formal notices. However, tax experts warn that ignoring them can have serious consequences.

Taxpayers are being strongly advised to:

  • Re-check their income tax returns

  • Ensure all claims are supported by valid documents

  • Correct discrepancies within the prescribed timelines

Calls for Deadline Extension

With the holiday season approaching and an unusually high number of alerts issued, tax professionals have urged the Ministry of Finance to extend the deadline for filing revised returns from December 31, 2025, to January 31, 2026, giving taxpayers adequate time to comply.

Options Available for Taxpayers

The Income Tax Department has outlined three possible courses of action depending on how taxpayers respond to the alerts:

1. File a Revised Return by December 31, 2025

  • Allows correction of errors within the original assessment year

  • No additional tax beyond legitimate dues

  • Safest option to resolve discrepancies

2. File an Updated Return from January 1, 2026

  • Available if the December 31 deadline is missed

  • Subject to additional tax liability under prevailing tax laws

3. Take No Action

  • May be treated as deliberate non-compliance

  • Significantly increases the risk of:

    • Detailed scrutiny

    • Audit or investigation

  • Current return processing will remain on hold

What Taxpayers Should Do Now

Experts advise taxpayers to act promptly by:

  • Reviewing Form 16 and AIS details

  • Verifying deduction claims

  • Disclosing all foreign assets and income

  • Filing a revised or updated return if needed