The issue has come to light through official emails sent directly to taxpayers, warning of a “significant mismatch” between exemptions claimed in income tax returns and figures reported by employers in Form 16, particularly Annexure II. According to the department, these discrepancies have led to inflated refund amounts, necessitating a pause in processing before refunds are issued.
Tax experts have clarified that refunds in such cases have not been rejected or cancelled but merely placed on hold. Processing is expected to resume once the mismatch is either corrected or satisfactorily explained. The department has advised taxpayers to carefully verify whether exemptions claimed—such as house rent allowance, leave travel allowance, or other deductions—are fully supported by documentation and correctly reflected in the Form 16 issued by their employer. Claims made at the time of filing that are absent from Form 16 appear to be a key trigger for the current scrutiny.
The official communication also carries a cautionary note. If taxpayers fail to take any action after receiving the email, the inaction could be interpreted as deliberate non-compliance, increasing the risk of the case being selected for detailed scrutiny at a later stage.
Chartered accountant Ashok Mehta, Managing Council Member of The Chamber of Tax Consultants, said the department’s intent should not be misunderstood. He noted that not every email from the tax authorities signals wrongdoing, adding that the objective is to encourage voluntary compliance and prevent penalties. Legitimate and well-supported claims, he said, do not need to be withdrawn, but taxpayers should be aware of the consequences of incorrect reporting.
The Income Tax Department has underscored the importance of the revised return deadline, setting December 31, 2025, as the final date to file a revised return for AY 2025–26. Taxpayers who discover errors can rectify them within this window without facing additional tax consequences beyond what is already payable. Those who have already filed a revised return addressing the mismatch have been informed that they can safely ignore the email.
Explaining why the issue has surfaced now, Mehul Sheth, Chartered Accountant and Secretary of The Chamber of Tax Consultants, said mismatches can arise for several reasons, both genuine and otherwise. He described the department’s outreach as an opportunity for taxpayers to re-examine their returns and ensure accuracy.
Taxpayers who receive such emails are advised to log into the income tax e-filing portal and compare their return line by line with Form 16 and Form 26AS. If the claims are valid and backed by documentation, no immediate correction may be required. However, if discrepancies exist, filing a revised return at the earliest is considered the safer course of action.
Sheth warned that failing to revise returns by December 31, 2025, could have consequences. From January 1, 2026, taxpayers would be required to file an updated return, which in certain situations may attract penalty proceedings. He described the department’s proactive communication as a constructive step aimed at preventing future disputes.
As refund season progresses, the episode underscores the growing reliance on data matching and automated risk checks by tax authorities. For taxpayers, it serves as a reminder that accurate reporting and alignment with employer-issued documents remain critical to ensuring timely refunds and avoiding prolonged scrutiny.
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