Slower Refunds After ITR Filing? IT Department Detects ₹700 Crore False Exemptions, Majority Linked to Old Regime

The Income Tax Department is intensifying scrutiny on Income Tax Returns (ITRs) following the detection of approximately ₹700 crore in false exemption claims, largely under the old tax regime. This crackdown is contributing to delays in refund processing, primarily impacting high-value filings.

Refund Delays Due to Fabricated Exemptions Under Old Regime

The Income Tax Department has launched a rigorous verification drive after uncovering fraud involving inflated exemption claims totalling nearly ₹700 crore. A significant number of these fraudulent exemptions, including falsified medical bills and fake donations, have been reported from taxpayers earning above ₹20 lakh annually under the earlier tax regime. Taxpayers with refund claims exceeding ₹10 lakh are notably facing longer delays as their returns are subjected to additional scrutiny.

Enhanced AI-Powered Verification Measures in Place

To combat tax evasion, authorities have deployed sophisticated analytics and AI-driven tools to detect irregularities in ITRs. Repeat offenders, especially those using fabricated deductions to reduce tax liability, are under close examination. Refund disbursements as of September 17, 2025, have decreased by 24%, totalling ₹1,60,000 crore, compared to ₹2,10,000 crore last year, reflecting the impact of increased verifications.

Read More: ITR Filing FY25: Why Your Income Tax Refund May Be Delayed and How to Track It!

Majority of False Claims from ₹20 Lakh+ Income Bracket

According to department findings, most discrepancies originate from high-income individuals, often repeating similar fraudulent claims over multiple assessment years. These returns are being flagged at the Centralised Processing Centre for reevaluation, delaying refunds even further. In July, the department initiated nationwide checks at various tax consultancy hubs suspected of promoting incorrect filing practices.

Taxpayers Reversing Fraudulent Claims After Notices

Following notices issued during a compliance campaign, taxpayers voluntarily withdrew deduction claims aggregating ₹963 crore and paid an additional ₹409.50 crore in taxes. Furthermore, 30,161 individuals disclosed foreign assets worth ₹29,208 crore and foreign income of ₹1,089 crore during this period.

Conclusion

The Income Tax Department's intensified verification mechanisms highlight its commitment to curbing tax evasion. Mandatory AI-led inspections and taxpayer disclosures are changing the refund timeline, particularly for those with high-value or questionable claims. The focus is clearly on weeding out false claims and ensuring accurate tax compliance.

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