Behavioural Responses of Taxpayers to Tax Refund Delays in India: Implications for Trust in the Direct Tax System

This study examines the behavioural responses of taxpayers to tax refund delays in India and analyses their implications for trust in the direct tax system. Despite significant advancements in digital tax administration, including e-filing and automated processing, refund delays continue to persist due to data mismatches, verification procedures, and administrative inefficiencies. These delays not only affect taxpayer liquidity but also influence perceptions of fairness, transparency, and efficiency within the tax system. Using a mixed-method approach, the study combines secondary data from government reports with primary survey data collected from 187 taxpayers across major Indian cities. The findings reveal that refund delays lead to several behavioural adaptations, including increased reliance on tax consultants, strategic reduction in advance tax payments, partial non-disclosure of income, and a shift toward simpler tax regimes. Notably, the study identifies a strong negative relationship between the duration of refund delays and taxpayer trust, with prolonged delays significantly reducing confidence in tax authorities. The analysis is grounded in behavioural economic frameworks such as the Slippery Slope Framework and Prospect Theory, which explain how reduced trust can shift taxpayers from voluntary compliance to enforced compliance. The study concludes that refund delays are not merely administrative issues but critical determinants of taxpayer behaviour and compliance dynamics. Addressing these delays through improved automation, transparency, and faster grievance redressal mechanisms is essential for strengthening trust and promoting a more efficient and taxpayer-friendly direct tax system in India.