Income tax refunds held back after Form 16 mismatch: Know the reasons

Income tax

A growing number of salaried taxpayers expecting refunds for Assessment Year 2025–26 are finding their income tax returns stuck for a long time.

The Income Tax Department has temporarily put refund processing on hold in cases where exemption claims made in the return do not match salary details reported by employers in Form 16. The issue has surfaced through emails sent directly to taxpayers, warning that unusually high refund claims have triggered scrutiny under the department’s internal risk checks.

The communication points to a ‘significant mismatch’ between exemptions claimed in the ITR and figures mentioned in Form 16 (Annexure II). According to the department, such discrepancies have inflated refund amounts, prompting the return to be flagged before processing.

According to experts processing has been paused, not rejected. Refunds will move ahead once the mismatch is addressed or explained.

"In case of any mismatch between the detail furnished in ITR and financial data received by the tax department, an automated email/SMS is sent to the taxpayers," said Gopal Bohra, Partner - Tax.

Taxpayers have been advised to review whether all exemptions claimed, such as house rent allowance, leave travel allowance or deductions, are fully supported by documents and reflected in the employer-issued Form 16. Income tax benefits that were claimed at the time of filing, but not backed by Form 16 , appear to be a key trigger.

The email also carries a warning. If no action is taken, the inaction may be viewed as deliberate, increasing the likelihood of the case being picked up for a more detailed examination later.

“Every notice from Tax department need not be looked at by contempt. The intention is to encourage voluntary compliance, so that the penalty provisions are not attracted. A claim made which is justified need not be reversed. The intention is to make assessee aware of penalty consequences,” said Ashok Mehta, CA and Managing Council Member of The Chamber of Tax Consultants.

The department has highlighted December 31, 2025, as the last date to file a revised return for AY 2025–26. Taxpayers who identify an error can correct it within this window without facing additional tax consequences beyond what is already payable.

If a revised return has already been filed addressing the issue, taxpayers have been told they can safely ignore the email.

Why is it happening now? “There can be for various reasons, both genuine or otherwise. In a way, opportunity is provided to review the return of income filed, said Mehul Sheth, CA and Secretary of The Chamber of Tax Consultants.

What should taxpayers do?

Those who receive such an email should log into the e-filing portal and compare their ITR line by line with Form 16 and Form 26AS. If the claim holds up and documents are in place, no immediate correction may be needed. If not, filing a revised return sooner rather than later is the safer option.

“In case the someone fails to file revised return by December 31, 2025, from January 1, 2026, he has to mandatorily file an updated return and in certain situation it may attract penalty proceedings. Thus, according to me the email is a positive step from the income tax department, Sheth said.