Last week in Parliament, the finance minister Nirmala Sitharaman stated that the average time taken to process income tax returns (ITR) has decreased from 93 days in FY 2013-14 to 10 days in FY 2023-24. While this is a commendable achievement for the government, does this mean you can expect faster tax refunds in the future? Read on to find out.
Not all ITRs are going to be processed in 10 days
The FM mentioned that the ‘average’ processing time has been reduced to 10 days now. This does not mean that all types of ITRs will get processed in 10 days. The higher the complications of an ITR form, the higher the time it takes to process it. ITR-3 is more complex than ITR-2, and ITR-2 is more complex than ITR-1.ITR Refunds for FY2023-24 (AY2024-25): Who will receive tax refunds quicker, filers of ITR-1, ITR-2 or ITR-3?
“Normally refund claims of ITR-1 gets prioritised followed by ITR-2 and ITR-3 in view of the simple and complex structure of the income returned. Refund claims in ITR-1 without any defect/adjustments generally are received by the taxpayers within a few days from the date of filing returns. However, if returns are filed very close to the last date of filing of ITR there could be delay in processing of returns. Refund claims in ITR-2 and ITR-3 without any defect/adjustments can be expected to be received in a couple of months normally,” says Ramakrishnan Srinivasan, former chief commissioner of Income tax.
How things fared in the last 20 years with tax refunds
A tax filing utility (tax filing software application) allows taxpayers to complete the complex tax filing with ease, and each year this is released with updated information. Any delay in the release of the utility results in a delay in filing and, hence, processing.
Srinivasan says that when he worked with the tax department as chief commissioner, there were delays in releasing the ITR utilities. He was equally surprised as everyone else when the tax department released utilities for FY 2023-24 (AY 2024-25) on March 18, 2024.
Income tax department releases JSON utilities for FY 2023-24 (AY 2024-25)
“In 2007- 08 taxpayers generally received the refund 12 months after he submitted the claim. The situation progressively improved over the years in the early part of last decade after establishment of the Centralised Processing Centre (CPC). Issues of tax refunds were speeded up but, on an average, it used to take 4 to 6 months but now I hear taxpayers receiving refunds within a few days after filing a return,” Srinivasan says.
According to CA Amit Bansal, Partner – Direct Tax, Singhania & Co the manual processing of ITR led to increased processing time until 2013, but its removal has now sped up the process.
As per S. R. Patnaik, Partner (Head – Taxation), Cyril Amarchand Mangaldas, various backend developments undertaken by the tax department over the years have contributed to faster ITR processing.
“There has been massive improvement in the digital infrastructure being used by the tax department in the last 10 years, which received a further boost during the lockdown of covid pandemic. It was made compulsory to do the ITR filing to submission of documents and hearings, electronically that necessitated massive upgradation of the backend. The present technology is state of the art and sophisticated and most of the data required by the taxpayers are available in the tax department’s web portal. Tax computations are entirely automated, which has reduced the possibility of arithmetical errors and/or incorrect claims. These developments have reduced the time required for processing of the ITR,” he says.
“Back in 2013, the average processing time for income tax returns (ITRs) was around 93 days. A major factor contributing to this was the requirement for taxpayers to send a physical copy of the ITR-V (acknowledgment) to the CPC in Bangalore. This added time for mailing and manual processing. The entire process was more cumbersome and less efficient compared to today,” says Bansal.
What changes did the tax department make to facilitate faster processing of tax refunds
According to Bansal, since 2013, the ITR processing software and backend systems have undergone significant improvements which have helped in processing tax refunds faster.
Here’s what has changed since 2013:
- Aadhaar-Based Verification: The introduction of Aadhaar-based e-verification allows taxpayers to instantly verify their returns without needing to send a hardcopy acknowledgment, which has dramatically reduced processing time.
- New tax filing Portal (2021): The launch of the new tax e-filing portal in 2021 marked a significant improvement. The portal features a user-friendly interface, making tax filing, grievance redressal, and request submissions easier and more efficient. This has provided much-needed relief to taxpayers and further sped up the overall process.
- Automation and Digitisation: Increased automation and digitization of the filing process have also played a critical role in reducing errors and speeding up processing.
- Centralised Processing and Automation: The integration of more automated systems and centralised processing has streamlined the entire process, leading to quicker turnaround times.
