Tax refunds made more than six months after the returns are filed will come with an annual interest of 12% and those with delay by over a year will be paid interest up to 18%, if the government accepts the recommendations of a high-level committee.
Currently, the interest on refunds can’t exceed 6%, a “low rate” which, according to the committee, doesn’t fully offset the opportunity cost of money to the taxpayer, while serving as a “perverse incentive” for the taxman to delay refunds.
The remarks of the RV Easwar Committee on simplification of the tax regime — which submitted its initial set of recommendations to the government recently — come at a time when the speed of tax refunds have improved in recent years thanks to the Bengaluru-based centralised processing centre (CPC) that allows e-returns.
Even as the tax department takes credit for the pace at which refunds are now being made and the “interest savings” because of the CPC, the panel said the higher interest rates proposed would prompt the tax administration to “put its house in order to expeditiously settle payment mismatches, if any.”
The CPC was set up in 2009. In that year, the CAG had estimated the interest on refund at 14.66% per annum (thanks to the huge delays and backlog of refund claims).
“Delay in getting the tax refund has been one of the key grievances of taxpayers. Though, the government has taken some steps in the past, more needs to be done. Accordingly, the committee has recommended the refund process be made time bound and has also proposed to increase the interest rate on refunds to one percent per month. Further, the committee has recommended that in case of excessive delays the interest rate should be one and and a half per cent per month,” said Vikas Vasal, partner (tax) at KPMG in India.
In addition, another major grievance of taxpayers is in relation to not granting of timely refunds in pursuance to orders passed in any appeal or other proceeding under this Act. The committee has said the refund should be cleared within three months from the end of the month in which the order is passed. Otherwise, the government should pay additional interest on such delayed refund at 0.5% per annum, over and above the normal interest rates.
“The recommendations of the committee, in relation to refunds if implemented, will go a long way in easing a major irritant for taxpayers since grant of refunds can be a challenging process today. In some cases it can take several years to get a refund even if the refund is legitimately due to a taxpayer. The recommendation that refunds should not be stopped where tax returns are selected for assessments is a fair suggestion because tax authorities in any case have enormous powers to collect outstanding demands,” said Rajesh H Gandhi, partner (tax) at Deloitte Haskins & Sells LLP.
A provision introduced in July 2012 stated that the processing of a return would not be necessary, where a notice has been issued. This has proved to be a bottleneck, as the scrutiny could extend up to 32 months or even 40 months. In such cases, it is grossly unfair to the assessee that the refund due to him under his tax return and payable within six months is withheld on the pretext that no processing of the tax return has taken place, said the Easwar committee, while recommending that the provision be deleted.
Revenue secretary Hasmukh Adhia recently wrote on Twitter that between April and now, the CBDT has issued refunds to 1.98 crore assesses for an amount of R65,000 crore. “In the last month’s special drive, 18.28 lakh assesses whose refunds were below R50,000 involving a sum of R1,793 crore have been issued,” Adhia said.