# Slower Tax Refunds in 2025: Why the Income Tax Department is Cracking Down on ₹700 Crore in Fake Exemption Claims
**Posted on September 20, 2025**
If you've filed your Income Tax Return (ITR) for FY 2024-25 (AY 2025-26) and are still waiting for that refund to hit your bank account, you're not alone. Reports from the past week reveal a nationwide slowdown in refund processing, with the Income Tax Department zeroing in on fraudulent exemption claims totaling a staggering ₹700 crore. The twist? Most of these bogus deductions are coming from taxpayers sticking with the old tax regime. In this post, we'll break down what's happening, why it's delaying your money, and how you can navigate the mess.
## The Crackdown: Fake Claims Under the Microscope
The Income Tax Department launched a large-scale verification drive back in July, targeting individuals and even entities that help facilitate dodgy deductions. Fast forward to mid-September, and they've uncovered a web of false exemptions amounting to ₹700 crore in attempted tax evasion. We're talking fabricated medical expenses, phantom donations to political parties or religious organizations, and other inflated claims that don't hold up to scrutiny.
Sources close to the matter estimate that these deceptive practices are widespread among taxpayers earning over ₹20 lakh annually, who are opting for the old regime to maximize deductions. The department's computerized systems at the Central Processing Centre (CPC) are now flagging high-risk returns—especially those with exemption claims exceeding ₹10 lakh—for deeper manual reviews. This enhanced risk assessment is the direct culprit behind the delays.
As of September 17, refunds issued have plummeted 24% year-over-year, dropping to ₹1.60 lakh crore from ₹2.10 lakh crore last year. If your claim is in the spotlight, expect a notice to revise your return or provide proofs. In a recent "nudge" campaign, over 30,000 taxpayers voluntarily withdrew ₹963 crore in dubious deductions and coughed up ₹409 crore in extra taxes. The message is clear: The department isn't playing around.
## Old vs. New Regime: Why the Old Guard is Getting Hit Hardest
India's tax landscape has been split since 2020, with the new tax regime becoming the default from AY 2024-25. Here's a quick refresher:
| Feature | Old Tax Regime | New Tax Regime (Default) |
|--------------------------|-----------------------------------------|-----------------------------------------|
| **Tax Rates** | Higher slabs, but deductions galore | Lower slabs, minimal deductions |
| **Key Deductions** | 80C (investments up to ₹1.5L), 80D (health insurance), 80G (donations), HRA, medical expenses | Limited: Standard deduction (₹50K from AY 2024-25), employer NPS contribution (14%) |
| **Rebate u/s 87A** | Up to ₹12,500 (income up to ₹5L) | Up to ₹25,000 (income up to ₹7L) |
| **Who Prefers It?** | Salaried folks with big deductions | Simpler filers, no paperwork hassle |
The old regime's allure lies in those juicy exemptions, but it's also a breeding ground for fakes. Claiming bogus medical bills or donations is easier here because you need receipts and proofs—until the AI catches on. Under the new regime, fewer options mean less room for mischief, which is why the majority of flagged cases (over 70%, per reports) are old-regime filers.
Pro tip: If you're in the old regime, double-check your claims against Form 16, AIS (Annual Information Statement), and Form 26AS. Mismatches? Fix them before filing to avoid the red flags.
## Why Refunds Are Taking a Hit—and How Long You'll Wait
Normally, refunds process in 4-5 weeks after e-verification. But with this crackdown, high-value claims are getting the full audit treatment, pushing timelines to 2-3 months or more. The department is prioritizing integrity over speed to prevent bogus payouts.
What triggers a delay?
- Claims > ₹10 lakh in exemptions.
- Discrepancies between your ITR and third-party data (e.g., employer TDS vs. your reported income).
- History of past inflated filings— the system remembers.
If you get a notice under Section 143(1) or a defective return alert, respond within 15 days with docs. Ignore it, and you risk penalties up to 200% of the underreported tax, plus interest.
## What Should You Do Next? Actionable Steps for Taxpayers
1. **Track Your Status**: Log into the e-filing portal (incometax.gov.in) > 'Services' > 'Refund Status'. It'll show if it's processed, held, or under review.
2. **Verify and Revise**: E-verify within 30 days. If flagged, file a revised ITR (u/s 139(5)) by December 31, 2025—no penalty if done right.
3. **Switch Regimes?**: If deductions aren't adding up (or seem risky), flip to the new regime in your ITR—it's opt-out simple for non-business cases.
4. **Gather Proofs Early**: Keep digital copies of everything. No fakes—penalties include fines and jail time for willful evasion.
5. **Seek Help**: Use the portal's grievance redressal or consult a CA. And remember, the department never asks for OTPs or bank details via email.
## The Silver Lining: A Fairer System Ahead
This purge might sting now, but it's leveling the playing field. Honest filers get faster processing once the dust settles, and evaders face the music. With ITR deadlines behind us (July 31 for most), focus on compliance to reclaim your refund sooner.
Have you faced delays this season? Drop your thoughts in the comments—let's commiserate (or celebrate) together. Stay tax-smart!
*Disclaimer: This isn't tax advice. Consult a professional for your situation.*
