The Hindu Business Line : Income-tax refund -- Tracking the process to avoid delays

ONE of the major problems faced by income-tax assessees is the inordinate delay in getting refunds for excess payments. This is hard on the middle-class section of society, especially senior citizens living off the interest on their savings.

In several instances, the assessee is not taxable in the normal course. However, the institutions paying out interest deduct 10 per cent of the amount if it exceeds a stipulated ceiling for non-deduction.

There is of course, a prescribed Form through which one can apply for non-deduction of taxes, but it is not helpful as its scope is limited So, invariably, the affected assessee has to apply for refund in the IT return.

The assessment itself takes a long time. And worse, there is considerable delay in the despatch of the refund order after it is signed.

Generally, cheques have a validity of six months before they lapse. But in the case of refund orders, which are equivalent to cheques, it is only three months. Often, they arrive just a few days before the validity expires.

If there are bank holidays, sudden strikes or disruption of transport, the situation gets worse. Many expert groups that have gone into the reform of the tax system have ignored this problem.

First, the assessee is under stress as he does not have adequate time to deposit the cheque, especially if he is away from home. Second, he does not get the interest due to him for the delayed period. (He would not like to appeal for such interest either, given his past experience and no-reply-to-letters policy followed by the IT Department).

Third, it becomes a security problem. If the signed cheque remains for several weeks in the Department it exposes itself to the possibility of fraudulent encashment.

There have been several instances of frauds committed on drafts and cheques sent by mail. Fourth, and most important, it becomes a source of corruption in the IT Department. It is obvious that someone at some level of the hierarchy expects `speed money' to expedite despatch.

Another plausible reason could be that cheques signed in March, the last month of the financial year, are delayed in despatch on official oral instructions to present a better picture of tax collections and thus of fiscal deficit.

It is similar to the practice of delayed payments to contractors or accumulation of arrears carried over to the next accounting year to window-dress the Budget.

While one can understand the despatch in April of a pay order signed in March it cannot be explained if the assessee gets it in June. Amidst much talk about systems and procedures, the IT department does not have a system to check on the timely despatch of refunds.

Now there is talk about the cheques being credited to bank accounts through the electronic transfer mechanism. The assessee is asked in the IT return form to give details of the bank account for this purpose. But it is a joke on the assessee because the electronic transfer has to be effected by an employee of the IT Department! Can he not also delay it expecting some fast money?

Where its own finances are affected the government is quick in taking action. A few years ago, it was found that large corporates deliberately made excess payments of tax to take advantage of the higher interest rate they got from the government on delayed refunds. So the government amended the law providing for a lower rate of interest!

The basic problem in government departments is the lack of accountability. Computerisation is no solution. Those who are expected to supervise the work of their subordinates are not doing their job satisfactorily. The Finance Minister should call for a statement on delayed despatch of refunds.

To begin with, this can be obtained from income-tax circles like Chennai, Mumbai, Kolkata and New Delhi for March 2005. It could be a statement indicating the assessee's PAN, the date of the cheque and the date on which it was despatched.

The IT Department's excuse for its inability to provide the statement could be that it was a manual operation and, hence, time-consuming or that the relative records were not available.

Another way of getting the data quickly would be to ask the Reserve Bank of India (RBI) to prepare it from its computerised records. The payments are cleared by the RBI and debited to the account of the IT Department. It should be possible to get the dates of the cheques and debits to the account.

Any explanation by the IT Department saying "assessees delayed the matter by not promptly depositing the instruments at their banks" will not wash, especially if the amounts are large and the number of instances many.

Such statements should be compiled once every quarter and extended to all income-tax circles in course of time, and a one-page summary table (frequency distribution) must be prepared for the the Finance Minister.

The objective here is to assess the magnitude of the problem and its growth or decline over a period and to put the concerned employees on guard indicating that their work was being monitored.

There is no point in calling for explanations in despatch delay. Instead, the government should formulate a rule to despatch refund orders within a couple of working days after the completion of assessment. If there is delay, the assessee should be paid interest for the relative period and it should be recovered from the employee responsible for it.

(The author is a former Officer-in-Charge of the Department of Economic Analysis and Policy, Reserve Bank of India.)

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