Income-Tax Refunds: Status, Failure, Reissue and Adjustment

A refund arises when more tax has been paid than is due. That happens through deduction at source, advance tax or self-assessment tax. The return claims the refund, processing determines it, and the bank credit is supposed to follow. In practice there are three places it can stop. The refund can fail on the way to the bank. It can be adjusted, in whole or part, against a demand for another year. Or it can be withheld because an assessment is pending. Each has its own remedy, and each affects the interest the department pays on the delay.

Which Act governs which year

• Refunds for assessment year 2026-27 (financial year 2025-26) and earlier are governed by the Income-tax Act, 1961. Entitlement is under section 237 and the claim under section 239, which says every claim “shall be made by furnishing return in accordance with the provisions of section 139”. The refund is granted on processing under section 143(1). Interest is under section 244A, and set-off and withholding under section 245. That follows from section 536(2) of the Income-tax Act, 2025. Under clause (g), as substituted by the Finance Act, 2026, the 1961 Act’s provisions on interest on refunds apply for periods on or after 1 April 2026, but at the 2025 Act’s rate “from the date on which such rate has been modified”. The rate in both Acts is at present one-half per cent a month.
• Refunds for tax year 2026-27 onwards are governed by the 2025 Act:
  • section 431 (entitlement);
  • section 433 (claim by return under section 263);
  • section 270(1)(e) (grant on processing);
  • section 437 (interest);
  • section 438 (set-off and withholding).

The two Acts now reach across each other. The Finance Act, 2026 inserted “or the Income-tax Act, 2025” into section 245(1) of the 1961 Act, with effect from 30 March 2026. Section 438(1) of the 2025 Act allows set-off against any sum payable under “the Income-tax Act, 1961 … or this Act”. A refund for an old year can be set off against a new-Act demand, and the other way round.

From return to refund

The Centralised Processing Centre (CPC) processes the return under section 143(1). It corrects arithmetical errors and makes the other permitted adjustments, then computes tax, interest and fee, and grants the refund, if any (clause (e)). The second proviso to section 143(1) bars an intimation “after the expiry of nine months from the end of the financial year in which the return is made”. Section 270(4) of the 2025 Act has the same limit. The portal’s refund-status user manual notes that refund processing starts only after the return is e-verified. A return verified late is treated as made on the date of verification; see E-Verifying a Return.

What to have ready

• The acknowledgement and intimation under section 143(1), from the portal’s View Filed Returns and the registered e-mail. The intimation shows the refund determined, and any adjustment.
• A pre-validated bank account in the taxpayer’s own name, from the portal’s My Bank Account service. The refund-status manual says “It is now compulsory to pre-validate your bank account”.
• PAN–Aadhaar linkage. An inoperative PAN stops the refund.
• For a section 245 intimation, the demand details (assessment year, section, demand reference number), and the papers showing why the demand is wrong or not presently payable: a challan for tax paid, a rectification application, an appeal filed, or a stay order.
• A verification method: Aadhaar OTP, DSC or EVC. A refund reissue request must be e-verified.

Tracking the status

The portal’s refund-status user manual gives the path e-File > Income Tax Returns > View Filed Returns, then the assessment year and View Details. The page shows the life cycle of the return and one of four refund statuses:

1. refund issued;
2. refund partially adjusted;
3. full refund adjusted;
4. refund failed.

If the refund has not arrived within four to five weeks of e-verification, the manual’s suggestion is to check for an intimation of discrepancies, and the registered e-mail.

Why refunds fail

The refund-status manual lists these reasons:

• the PAN is inoperative (not linked with Aadhaar);
• the bank account is not pre-validated;
• the name does not match the PAN;
• the IFSC is invalid;
• the bank account is closed.

The manual’s remedy for the PAN case is to link PAN and Aadhaar through the pop-up’s “Link Now” option. For the others, the fix is to correct or add the account and then ask for the refund to be reissued.

Asking for a reissue

The portal’s Refund Reissue user manual sets out the prerequisites: a filed return whose refund has failed, a validated bank account, and access to Aadhaar OTP, a DSC or an EVC. The steps are:

1. Log in. From the dashboard, choose Services > Refund Reissue.
2. Click +Create Refund Reissue Request, select the record, and click Continue.
3. Select the bank account to which the refund is to be credited. Only validated accounts are shown, and an Add Bank Account link is available. Then click Proceed to Verification.
4. E-verify the request.
5. Note the transaction ID shown, which is also sent by e-mail and SMS. Track the request through View Refund Reissue Request.

The Raise Service Request manual lists Refund Reissue as one of the service requests, alongside condonation of a late ITR-V and condonation for filing a time-barred return. A request raised by an e-Return Intermediary must be verified by the taxpayer.

Adjustment against a demand: section 245

The provision

Section 245(1) allows the Assessing Officer, or the Commissioner or higher authority, “in lieu of payment of the refund”, to set off the refund against “the sum, if any, remaining payable under this Act”. But this may be done only “after giving an intimation in writing to such person of the action proposed to be taken”. Section 438(1) and (2) of the 2025 Act divide the same rule between two sub-sections.

Responding to the intimation

The CPC’s intimation proposing the adjustment is answered on the portal. The portal’s user manual for responding to outstanding demand gives the path Pending Actions > Response to Outstanding Demand. The intimation can be downloaded there as “Latest section 245 notice”. The response options are:

• Demand is correct, with a sub-choice of not yet paid (Pay Now) or already paid (Add Challan Details);
• Disagree with the demand (Either in full or in Part). The taxpayer clicks Add Reasons and gives details for each reason. Any agreed part is paid through Pay Now.

The manual warns: “Once you submit the response as Demand is correct, then you cannot Disagree with Demand later on.” Attachments are limited to 5 MB each. The manual sets no time for the response.

What the courts have required

In Court on its own motion v. CIT (Delhi High Court, 14 March 2013), a public interest petition, the Court found that the department had uploaded incorrect arrears to the CPC. It had then adjusted later refunds against them without following section 245. It held that “the procedure under Section 245 of the Act is mandatory, just and fair”. The two-stage process, intimation first, adjustment after considering the reply, cannot be skipped. Where the adjustment had been made without it, the Court directed relief. It also held that a demand created by an intimation under section 143(1) that was never communicated cannot be enforced, and that the onus to show communication is on the Revenue. Interest under section 244A cannot be denied where the delay results from the department’s lapse.

In GMR Airports Ltd v. Assistant Director of Income-Tax (Karnataka High Court, 9 February 2022), the assessee’s AY 2017-18 demand was under appeal and stayed after deposit of 20 per cent of it. The CPC issued a section 245 intimation and adjusted the AY 2019-20 refund against that demand. The assessee had filed objections. The Court set aside the adjustment and remitted the matter for fresh consideration of the intimation after the objections, within six weeks. It directed that any refund due be paid expeditiously. The order does not decide whether a stayed demand can ever be set off. It holds that the objections must be considered before the adjustment.

Withholding pending an assessment

Under section 245(2), where proceedings for assessment or reassessment are pending, the Assessing Officer may withhold a refund. He must record reasons in writing and have the previous approval of the Principal Commissioner or Commissioner. The withholding lasts “up to sixty days from the date on which such assessment or reassessment is made”. Since 1 October 2024, the section no longer requires the officer to form the opinion that granting the refund would adversely affect the revenue. Section 438(3) of the 2025 Act is the same. For the additional interest under section 244A(1A), the period of withholding is excluded.

Interest on refunds: section 244A

Interest is simple, at one-half per cent for every month or part of a month. The 2025 Act’s section 437 sets the same rate in a table. The period depends on what is being refunded:

• TDS, TCS and advance tax (section 244A(1)(a)): from 1 April of the assessment year to the date the refund is granted, if the return was filed by the due date under section 139(1). In any other case, from the date of filing.
• Self-assessment tax (clause (aa)): from the date of filing or the date of payment, whichever is later.
• Any other case (clause (b)), such as tax paid on a demand later reduced: from the date the excess over the demand was paid.

No interest is payable under clause (a) or (aa) if the refund is less than ten per cent of the tax determined under section 143(1) or on regular assessment. Under section 244A(2), any period of delay attributable to the assessee is excluded. Where the refund arises from giving effect to an appellate or revision order, section 244A(1A) adds interest at three per cent a year from the end of the time allowed for giving effect. A deductor’s refund carries interest under section 244A(1B). The Revenue also has a claw-back: if a refund granted on processing turns out excessive on assessment, section 234D (section 426 of the 2025 Act) charges interest at one-half per cent a month on the excess.

The character of this interest was settled in Union of India v. Tata Chemicals Ltd. (Supreme Court, 26 February 2014). A resident company had deducted tax under an order under section 195(2) on a payment to a Danish company. It deducted on the whole invoice, including reimbursed expenses. The CIT(A) held the reimbursements not taxable and directed a refund. The department refunded the tax but refused interest, relying on CBDT circulars that denied section 244A interest on such refunds. The Court held that “interest payment is a statutory obligation and non-discretionary”, and that a refund of money retained without right “should carry interest in the matter of course”. It held the deductor entitled to interest from the date of payment, under clause (b). The deductor’s case now has its own provision in section 244A(1B), but the decision remains the leading statement that refund interest is compensation for the use of the taxpayer’s money, not a concession.

What can and cannot be changed afterwards

• A failed refund is cured by reissue, with no fresh return.
• A refund reduced by an adjustment under section 143(1) is contested by rectification under section 154 (section 287 of the 2025 Act) or by appeal.
• An adjustment under section 245 is answered by the response to outstanding demand. Once the adjustment is made, a demand later reduced on appeal or rectification produces a refund with interest.
• A refund not claimed in time can be claimed only through the return: a revised return within the revision window, or, where the time for a return has expired, condonation under section 119(2)(b) through the portal’s “Allow ITR filing after time-barred” request. An updated return cannot be used to claim or increase a refund.

Summary

1. Identify the year. AY 2026-27 and earlier fall under the 1961 Act (sections 237, 239, 143(1), 244A and 245). Tax year 2026-27 onwards falls under the 2025 Act (sections 431, 433, 270, 437 and 438).
2. E-verify the return, link PAN with Aadhaar and pre-validate the bank account, since processing and payment depend on all three.
3. Track the refund under View Filed Returns, which shows it as issued, partly adjusted, fully adjusted or failed.
4. For a failed refund, correct the bank details and raise a request under Services > Refund Reissue, e-verified.
5. For a section 245 intimation, respond under Pending Actions > Response to Outstanding Demand, disagreeing with reasons where the demand is wrong, paid, rectified, under appeal or stayed. A “Demand is correct” response cannot be withdrawn.
6. Check interest under section 244A: from 1 April for TDS and advance tax where the return was on time, from filing or payment for self-assessment tax, and nothing if the refund is under ten per cent of the tax determined.
7. Pursue an adjustment or reduced refund by rectification or appeal, and a time-barred claim only through condonation.

This guide completes the returns set. The notices set that follows begins with the intimation under section 143(1).