If your return is flagged by RMS- What Should Taxpayer Do?

If Tax Refund delayed – Unless these taxpayers verify it on the ITR portal, they will not receive a refund.

Even though the Taxpayer filed & verified his Income tax Returns, the Risk Management System can pause your refund if there are discrepancies that require clarification. Ensuring the accuracy of your claims and being prompt in your responses will help in avoiding unnecessary delays.

The Risk Management System of Tax Dept  is a critical tool designed to prevent fraudulent or erroneous refund claims by scrutinizing certain Income Tax Returns more closely. If your ITR is flagged by the Risk Management System, it can pause your tax refund process until further verification and clarification are provided.

Even if you have submitted and validated your Income tax Returns,  there are still a lot of additional circumstances that could affect when you receive your tax return. The tax agency requires various checks and balances to be completed before issuing a refund. The tax agency uses a tool called the “Risk Management System” to find Income tax Returns that might need more investigation. An email notification will be sent to you if the tax department’s Risk Management System recognises your Income tax Returns.

After the tax department’s RMS has located and validated your Income tax Returns, it won’t be processed unless you resolve the problem. In the worst event, the tax department may send you an income tax notice if you choose not to take any action.

When is the Risk Management System of the tax department able to halt the processing of your tax refund? The Income Tax Department has discovered fraudulent claims in tax returns over the years, according to S. Ramakrishnan, the former Chief Commissioner of the department. As a result,

Risk Management System has been put in place consequently to which such emails are issued to taxpayers to confirm their claims before issue of refunds.” It has been seen that you have filed an income-tax claim for a refund.

The Income Tax Department’s risk management methodology has recognised your Income tax Returns Return. Your confirmation is needed for following claims, deductions, and omissions on the return,” the income tax department informed the taxpayer in a notification to all the such kind of taxpayer.

Instances when Risk Management System is come from Tax Dept.  

Here are the key instances when the Risk Management System may pause your refund:

• Suspicious Refund Claims: If you have claimed a tax refund that appears to be disproportionate or unusual based on your income or previous filings, the Risk Management System may flag it for scrutiny. The department aims to avoid issuing refunds on erroneous or bogus claims, so such claims are often reviewed thoroughly.
• Mismatches in Data: If there are mismatches between the income, TDS, or deductions claimed in your Income tax Returns and the data available in Form 26AS or the department’s records, your return may be flagged. For example, if the Tax Deducted at Source claims don’t align with the records submitted by your employer or other deductors, your return will be paused for correction.
• Incorrect or Inconsistent Deductions: If deductions or exemptions under sections like 80C, 80D, or others are claimed in a way that seems inconsistent with your profile (e.g., high deductions but low income), your Income tax Returns could be flagged. The department may seek additional confirmation or documentation to verify the authenticity of such claims.
• Omission of Income: If you fail to declare a source of income (like interest from savings, rental income, or capital gains), the Risk Management System could flag your return. Even small discrepancies or missing income from multiple sources can lead to scrutiny.
• Previous Discrepancies: If your past returns have been flagged for errors or misreporting, the Risk Management System might place your current return under scrutiny to ensure consistency and accuracy, delaying your refund process.
• High-value Transactions: If you’ve engaged in high-value transactions, such as the purchase of property, significant bank deposits, or substantial stock market investments, and the corresponding income hasn’t been reported or justified, the Risk Management System may pause your refund until the issue is clarified.
• Business Loss Claims: For those running businesses, especially if claiming losses that reduce taxable income, the Risk Management System could raise an alert. The department tends to scrutinize cases where business losses seem inflated or inconsistent with historical filings.

What Happens Next In case ITR is flagged by the RMS?

If your return is flagged by the RMS, the Income Tax Department will send you an intimation via email, asking for clarification or confirmation on certain claims or deductions in your ITR. This email typically outlines the issues that need to be addressed.

What Should Taxpayer Do- In case ITR is flagged by the RMS?

• If you receive an intimation from the department, you must respond promptly and provide the necessary details or documentation to substantiate your claims. In case your ITR contains errors or discrepancies, file a revised return with the correct information.

Consequences of Inaction – If ITR is flagged by the RMS

• If you fail to respond or take corrective action, the Income Tax Department may issue a notice under sections like 139(9) (Defective Return) or even initiate further proceedings. In extreme cases, your refund could be withheld, or additional penalties may apply.

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