Refund laws stacked against income-tax payers
If a taxpayer fails to pay tax on time, in the income tax act there are various provisions to charging of interest. There are also provisions for giving interest on refund to taxpayer. The taxpayer who is defaults in making payment of tax interest or penalty has to pay interest @ 12% p.a., (in some cases even @18% p.a.), In contrast on refund issued the income tax department pays interest only at6% p.a.The rate remains 6% even if the department delays the refund. Moreover the tax payer is further liable for penalty u/s 221 @ 12% if there is default in paying tax, in addition to interest. If it defaults in issuing refund in time to the taxpayer, there is no corresponding liability on the department.
The interest become disallowable while computing individuals taxable income if the department charges interest @ 12% p.a.,. The interest given by the department is taxable in the hand of the tax payer and therefore, 6% interest given by the department becomes only 4% (post tax) in the hands of the taxpayer because ha has to pay tax of around Rs 2 on an interest of Rs.6 on the refund.
The higher authorities give oral instructions to withhold large refunds to achieve budget targets. Thus, they get rewarded by doing an injustice to the taxpayer. To provide an in-built mechanism of refunds, an amendment to the law is required.As law prescribes various dates for compliance by the tax taxpayer, the law should prescribe various dates for the issue of refund in different circumstances. If such a change is made in law, it would result in better voluntary compliance by the assessee. It would also substantially reduce corruption in the department.
The targets fixed for officers for budget collection should be only for gross collection without refund according to an administrative measure.If refunds are issued on time and the tendency to withhold refunds for achieving budget collection is curbed, then this will ensure that their budget collection targets are not affected adversely.