FM Sitharaman Announced ITR Time To Be Reduced From 93 Days To 10 Days; What Does This Mean?

India's income tax department has made a stride over the last decade in reducing the time it takes to process Income Tax Returns (ITRs). In a recent statement in Parliament, Finance Minister Nirmala Sitharaman announced that the average time for processing ITRs has plummeted from 93 days in the financial year (FY) 2013-14 to just 10 days in FY 2023-24. This drastic reduction is undoubtedly a significant achievement for the government, but what does it mean for taxpayers? Should you expect your tax refunds to arrive within 10 days? The answer, while promising, is not as straightforward as it may seem.

Understanding the 'Average' Processing Time

When Finance Minister Sitharaman mentioned that the average processing time has been reduced to 10 days, it's essential to grasp that this figure represents an average. Not every ITR will be processed in 10 days, and several factors can influence the actual processing time. The complexity of the ITR form filed is a determinant.

For instance, the simpler ITR-1 form, used primarily by salaried individuals, typically gets processed faster than the more complex ITR-2 and ITR-3 forms. "Normally, refund claims of ITR-1 get prioritized followed by ITR-2 and ITR-3 in view of the simple and complex structure of the income returned," says Ramakrishnan Srinivasan, a former chief commissioner of Income Tax in a conversation with The Economic Times. He further explains that if an ITR-1 is filed without defects or adjustments, the refund is usually received within a few days. However, for ITR-2 and ITR-3, even if filed without errors, the refund can take a couple of months.

The Evolution of Tax Refund Processing Over Decades

The journey to this 10-day average processing time has been a long one, marked by continuous improvements in technology and processes within the Income Tax Department. Two decades ago, receiving a tax refund was a protracted process, often taking up to a year. Taxpayers would have to wait for several months after filing their returns to see any refund, if due.

A turning point came with the establishment of the Centralized Processing Centre (CPC), which was designed to speed up the processing of returns. By the early 2010s, the time to process ITRs had been reduced to 4-6 months. Even so, it was still a considerable wait.

Srinivasan recalls, "In 2007-08, taxpayers generally received the refund 12 months after submitting the claim. The situation progressively improved over the years, especially after the establishment of the CPC. Issues of tax refunds were sped up, but on average, it used to take 4 to 6 months." Fast forward to today, and taxpayers are now receiving refunds within days, thanks to several advancements.

What Has Changed Since 2013?

The massive reduction in processing time is attributed to several key developments in the Income Tax Department's infrastructure and processes.

Aadhaar-Based Verification: One of the most impactful changes has been the introduction of Aadhaar-based e-verification. Previously, taxpayers had to send a physical copy of the ITR-V (acknowledgement) to the CPC in Bangalore, which added weeks to the process due to postal delays and manual handling. The Aadhaar-based e-verification allows taxpayers to instantly verify their returns electronically, eliminating the need for physical documentation and significantly speeding up the process.

New Tax Filing Portal (2021): In 2021, the Income Tax Department launched a new e-filing portal, which marked a significant upgrade from its predecessor. The new portal features a more user-friendly interface, making the filing process smoother and more efficient. Taxpayers can now easily file their returns, track their status, and address grievances through a streamlined process. This has not only made tax filing less cumbersome but has also sped up the overall process.

Automation and Digitisation: The shift towards greater automation and digitization within the tax department has played a critical role in reducing processing times. Automated systems reduce the possibility of errors in tax computations, which were more common when returns were processed manually. These errors often led to delays as they required manual intervention to resolve.

Centralised Processing and Automation: The centralization of the processing of ITRs at the CPC and the integration of automated systems have streamlined the entire process. The use of sophisticated technology ensures that most of the data required by taxpayers is already available on the department's web portal. This integration not only speeds up the process but also ensures that the processing is accurate and efficient.

Will Tax Refunds Be Faster?

While the average processing time has been reduced to 10 days, not all taxpayers will receive their refunds this quickly. As mentioned earlier, the complexity of the return, the accuracy of the information provided, and the timing of the filing can all influence how quickly a refund is processed.

Moreover, the surge in filing activity as the deadline approaches can create a backlog, leading to potential delays. For taxpayers filing ITR-1, the prospects of receiving refunds within a few days are bright, provided there are no errors in the return. However, for those filing more complex returns, the wait may still be a little longer, though far shorter than in previous years.