Income tax refunds fall sharply owing to new fraud checks

Income tax refunds have seen a 16% decrease this year as authorities implemented enhanced filters for payments exceeding a certain threshold to combat fraud. This reduction in refunds has contributed to a 6.3% rise in net direct tax collections, reaching nearly Rs 11.9 lakh crore.

Gross direct tax collections between April and October 12 were up 2.4% at Rs 13.9 lakh crore, driven by a significant drop in personal income tax.

Official data from the Central Board of Direct Taxes indicates that refunds fell from over Rs 2.4 lakh crore to just above Rs 2 lakh crore during this period. Non-corporate tax refunds saw a substantial decrease, nearly halving from over Rs 1.2 lakh crore in the corresponding period last year to Rs 62,359 crore.

The decline in refunds is being attributed to new measures put in place by tax authorities. These include automated validation and additional risk-assessment checks at the Central Processing Centre (CPC). These checks are designed to prevent incorrect refund claims and ensure accuracy, though they may sometimes require additional time.

"Due to automated validation and additional risk-assessment checks put in place at CPC to prevent incorrect refund claims, which sometimes take additional time to ensure accuracy," ToI reported citing tax officials.

An official explained that all income tax returns (ITRs) claiming refunds above a specific threshold are subjected to these additional checks. The threshold for these enhanced reviews varies depending on the category of taxpayers.

"All ITRs (income tax returns) in which refunds claimed are above a particular threshold are going through additional checks," said an official.

The official further elaborated on the differentiating factor for these checks.

The overall impact of these measures is a more robust system for processing tax refunds. The focus on preventing fraudulent claims is a key driver behind the revised procedures. This proactive approach aims to safeguard public funds and ensure the integrity of the tax system.