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Income-Tax reform begins with refunds: paid to taxpayers, record amount cleared
May, 12th 2011

In a move that has virtually stamped out petty corruption and benefited a swathe of tax payers across the country, the finance ministry has issued refunds of Rs 27,800 crore in the first 40 days in the current financial year a record high.
To just give a sense of this years scale, the amount refunded this year so far is more than thrice the tax refunds of Rs 9,600 crore made in April-May 2010.

And in something unprecedented, most people who filed their income-tax returns for 2010-11 by March 31 have already been issued refunds, wherever due.

This assumes signficance given the widespread complaints of taxpayers being forced to cough up bribes to get their refunds.

Key to this dramatic change: the electronic filing and processing of returns that is fully functional since April 2010.

And, of course, Finance Minister Pranab Mukherjee extracted this promise of the CBDT chief Sudhir Chandra, who in turn, exhorted his officers in a letter, Will you not help me fulfill this promise?

There is a time bar for refunding the excess income charged as tax. The department has to issue refunds within two years. This time, however, it has decided not to hold on to refunds and clear the entire backlog as it gears up for the Direct Tax Code to be implemented from April 1, 2012.

The Central Processing Centre in Bangalore that started functioning to full capacity in April 2010 handles returns filed on paper and those filed online. It has drastically cut short the time taken in processing refunds and helped the department cope with rapid growth in the number of taxpayers. The government will set up two more CPCs one in Pune, Maharashtra and the other in Manesar, Haryana.

In addition to Rs 27,800 crore already credited into taxpayers accounts, the department has dispatched Rs 6,000 crore worth refunds and is in the process of issuing refunds of another Rs 12,000 crore.

By June-end, the department hopes to clear the table on refunds. Those who file returns before the last day July 31, 2011 would most likely get their refunds within the next three or four months.

During 2010-11, the revenue department refunded a total of Rs 74,000 crore and in the previous year, about Rs 57,000 crore. But these include the refund dues of previous years as well.

Given the huge quantum of refunds, the government actually resorted to short-term borrowings. It raised Rs 32,000 crore through cash management bills, an instrument that allows the government to raise funds with short-term maturity. The net tax collection for April 2011-12 is just Rs 17,000 crore compared with the gross tax collections stood at Rs 46,000 crore.

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