ABP Live Your Money Your Life | Tax Refund Delay: What Happens If Your ITR Isn’t Processed By Dec 31?

ABP Live Your Money Your Life: With December 31 merely hours away, anxiety is rising among taxpayers whose income tax returns (ITRs) for the current assessment year are still stuck in limbo. 

With just one day left before a crucial statutory deadline, a sizeable number of returns remain unprocessed by the Income Tax Department’s Centralised Processing Centre (CPC).

While some of these pending cases involve straightforward refund claims, others are caught in the system after automated alerts flagged mismatches between Form 16 and the ITR. 

Common triggers include discrepancies linked to deductions, disclosures such as political donations, or cases where the department has not yet issued a final computation. What changes after December 31, however, is not the pace at which the tax department works; it is the level of control taxpayers retain over corrections.

Why December 31 Is a Critical Cut-Off

A common misconception among taxpayers is that if their return has not yet been processed, they can revise it later if required. This assumption is incorrect. The right to voluntarily revise an income tax return is tied strictly to the statutory deadline, not to the processing status.

Once the clock strikes midnight on December 31, taxpayers lose the option to file a revised return for the assessment year, even if their ITR is still awaiting processing. Any correction after this date shifts from being voluntary to procedural, with far fewer and more expensive options available.

How Many Returns Are Still Pending

As of December 28, around 8.5 crore income tax returns had been filed and verified for the Assessment Year 2025–26. Of these, approximately 7.8 crore returns have already been processed. That leaves over 70 lakh returns still pending with the CPC, reported Moneycontrol.

More than 21 lakh revised returns have been filed this year, largely in response to mismatch alerts and compliance nudges issued by the department. Tax professionals say a significant portion of the unprocessed returns involve refund claims, which are automatically placed on hold when discrepancies are detected.

What Happens If You Miss the Revision Window

If your return is processed after December 31 and the tax department makes an adjustment, your options narrow sharply.

At that stage, taxpayers may be forced to use the updated return mechanism (ITR-U). However, this route comes with a steep cost. The additional tax payable on updated returns is 25 per cent in the first year, 50 per cent in the second year, 60 per cent in the third year, and 70 per cent in the fourth year. An ITR-U, once filed, must also be verified.

In other words, a mistake that could have been fixed at no extra cost before December 31 may later attract a significant financial penalty.

Does a Pending ITR Mean Your Refund Is Lost?

The short answer is no. A refund does not disappear simply because a return remains unprocessed after December 31.

The law allows the Income Tax Department adequate time to complete processing, and any refund that arises after processing remains payable to the taxpayer. Where delays are not attributable to the assessee, interest is also built into the framework.

That said, refunds linked to unresolved discrepancies can remain frozen until the issue is resolved through the limited channels still available after the deadline.

The Risk of Tax Demand and Penalties

If the CPC processes the return after December 31 and confirms a mismatch, for instance, by disallowing a political donation claim, the taxpayer could face a more serious situation.

First, the assessee can no longer file a revised return to correct the error because the statutory deadline has passed. The CPC will issue an intimation under Section 143(1), raising a tax demand for the disallowed amount along with interest.

More importantly, since the mismatch was flagged earlier and the taxpayer chose not to revise the return, the department may treat the case as “misreporting of income”. This can attract penalties ranging from 50 per cent to 200 per cent of the tax evaded under Section 270A.

How Long Can the Department Take to Process Returns?

There is also a statutory time limit for the tax department. The CPC cannot process an ITR after the expiry of nine months from the end of the financial year in which the return was furnished. This provides a legal outer boundary for processing delays, even though the wait can feel interminable for taxpayers expecting refunds.

What Interest Is Paid on Delayed Refunds?

The law is clear on compensation for delays. When a refund becomes due, the taxpayer is entitled to simple interest at 0.5 per cent per month or part of a month. This works out to an annual interest rate of 6 per cent, calculated monthly on the refund amount.

Why the Deadline Still Matters

December 31 is not about whether refunds arrive sooner or later. It is about leverage. Before this date, taxpayers retain control over corrections. After it, the system takes over.

Tax advisers warn that taxpayers who have received mismatch alerts should review them carefully rather than assume processing delays will resolve the issue automatically. Once the revision window closes, even a minor oversight can become costly to fix.