You filed your income tax return on time, verified it promptly, and expected the refund to land in your bank account within a few weeks. But weeks turn into months, and the refund never arrives. Or worse, you receive an intimation showing a drastically reduced amount. This is a common income tax refund issue that thousands of taxpayers across India face every assessment year.
Refund delays, withholding, and adjustments against outstanding demands follow specific provisions of the Income Tax Act, 1961. Understanding why your refund is stuck, what a tax refund adjustment means, and how to file a refund grievance can save you considerable time. This guide covers every aspect of refund withheld cases and practical steps to recover your money.
Why Is Your Income Tax Refund Withheld?
The most common reason behind a refund withheld case is an outstanding tax demand from a previous assessment year. Under Section 245, the Assessing Officer can adjust your current refund against any pending demand. Before making this adjustment, the department sends an intimation. However, many taxpayers overlook these notices, and the adjustment happens automatically.
A mismatch between declared income and departmental records is another frequent trigger. If your TDS credits, advance tax, or self-assessment tax entries don't match Form 26AS or AIS data, the processing engine under Section 143(1) recalculates your liability and reduces the claimed refund.
Bank account validation failure also causes refunds to bounce back to the CPC. Incorrect account numbers, outdated IFSC codes, or accounts not pre-validated on the e-filing portal are typical culprits. Taxpayers who maintain accurate records through professional accounting services tend to encounter fewer such problems.
How Tax Refund Adjustment Works Under Section 245
Section 245 governs the tax refund adjustment process. When the department identifies that you owe taxes from a previous year, it sets off your current refund against that liability. The Assessing Officer first issues an intimation specifying the outstanding demand, the related assessment year, and the proposed set-off amount. You receive an opportunity to respond before the adjustment is executed.
If you agree, the adjustment proceeds. If you disagree, file a response on the e-filing portal stating objections. Perhaps the demand is already paid, disputed, or stems from a departmental error. Your response should include challans, revised computation, or rectification applications as evidence.
| Scenario | Department Action | Taxpayer Remedy |
| Outstanding demand from prior year | Refund adjusted under Section 245 | Respond to intimation or file rectification under Section 154 |
| TDS mismatch in Form 26AS | Refund reduced after 143(1) processing | Request TDS correction from deductor or file revised return |
| Bank account validation failed | Refund returned to CPC | Pre-validate bank account and request refund reissue |
| Return under scrutiny | Refund withheld pending assessment | Respond to notices and provide documentation |
| Defective return under Section 139(9) | Processing halted | Rectify defects within 15 days of notice |
Steps to Resolve a Refund Grievance
When your refund remains stuck despite a processed return, the e-Nivaran portal integrated with the e-filing website provides a structured grievance redressal path. Log in, navigate to the 'Grievances' section, choose the relevant category such as 'Refund Not Received' or 'Refund Adjusted Against Demand,' and submit your concern with the assessment year, acknowledgment number, and supporting documents.
If e-Nivaran doesn't resolve the matter within a reasonable timeframe, escalate to the Income Tax Ombudsman or approach the jurisdictional Assessing Officer directly with a written application. Having professional support for your income tax return filing and post-filing follow-up ensures grievances are tracked systematically.
Section 154 Rectification for Incorrect Adjustments
If your refund was adjusted against a demand you believe is incorrect, Section 154 allows rectification of mistakes apparent from the record. Common rectifiable errors include wrong TDS credit computation, incorrect tax slab application, and mathematical miscalculations. The request must be filed within four years from the end of the financial year in which the order was passed.
Once submitted through the e-filing portal, the CPC reprocesses your return. If accepted, the additional refund along with interest under Section 244A is credited to your account. Businesses handling multiple compliances, including GST audit requirements, benefit from addressing income tax rectifications simultaneously.
Interest on Delayed Refunds Under Section 244A
When the department delays your refund, you earn interest at 0.5% per month under Section 244A. For refunds from excess advance tax or TDS, interest runs from April 1 of the assessment year. However, for returns filed after the due date, interest starts from the filing date instead. This makes timely filing doubly beneficial, as you avoid late filing penalties under Section 234F and earn full interest on any refund due.
Conclusion
Every income tax refund issue has a traceable cause and a defined remedy. Whether your refund is withheld due to an outstanding demand, reduced after processing, or returned by the bank, understanding the provisions empowers you to act decisively. File accurate returns, verify them immediately, pre-validate your bank account, and respond to department notices promptly. For comprehensive support with income tax return filing, accounting services, and post-filing refund tracking, partnering with experienced professionals makes the process smoother.
