If you attempt a refund for a payment that has already been settled to your bank account, you may not have sufficient balance in your Paytm for Business account to initiate this refund. You will have to wait till you accept new payments so Paytm has available balance to use for these refunds.

Or you can get the refund advance account created. In which you can add funds to initiate the refunds upto the amount avaiable in your refund advance account. Click on the link to get your refund advance account created.