Income Tax Refund Delay Rules and Interest Calculation for AY 2025-26

Income Tax Refund: Many taxpayers waiting for their income tax refunds for the Assessment Year (AY) 2025–26 are facing an extended wait. Recent data from the Income Tax Department’s portal reveals a significant backlog, with approximately 61 lakh returns remaining unprocessed as of January 6, 2026. This bottleneck has left lakhs of individuals uncertain about when their funds will be released.

While the deadline for filing belated returns passed on December 31, 2025, the anxiety among taxpayers continues to grow. However, it is crucial to understand the legal framework governing these delays, as the authorities are operating well within their permissible limits.

The One-Year Processing Window

Many assume that once a return is filed, the processing should happen immediately. However, Section 143(1) of the Income Tax Act provides the department with a substantial buffer. For the financial year 2024–25, the authorities have the legal right to process tax returns up to December 31, 2026.

This effectively grants the Income Tax Department a one-year window to complete assessments. Consequently, missing the December 31, 2025 timeline does not constitute a breach of legal provisions by the department, nor does it invite any penal action against them.

Why is Your Refund Stuck?

The primary reason for the slowdown this year appears to be stricter verification measures. The department is rigorously cross-referencing filed returns with data available in their system. Returns are facing longer processing times if they do not fully align with:

• Form 26AS
• Annual Information Statement (AIS)
• Taxpayer Information Summary (TIS)

While salaried taxpayers generally experience faster processing, those claiming high-value refunds or deductions not supported by Form 16 are seeing their assessments slow down. Senior citizens (except super senior citizens aged 75+ with only pension/interest income) are also facing delays if discrepancies are flagged.

Interest on Delayed Refunds: The Silver Lining

If the department takes its time, do taxpayers get compensated? The answer is yes, but with conditions. Under Section 244A of the Income-tax Act, 1961, the government is liable to pay interest on delayed refunds.

• Interest Rate: Taxpayers are entitled to interest at 0.5% per month.
• Calculation Period: In most cases, this is calculated from the date the tax was paid or the date the return was filed (whichever is later) until the refund is credited.

Crucial Exception: No interest is payable if the refund amount is less than 10% of the total tax paid for the year.

For the vast majority of pending cases, the delay is less about errors and more about the department utilizing the legally permitted processing window. Taxpayers whose returns result in “no refund and no demand” are largely unaffected by these administrative delays.