With a view to further tighten and monitor income tax refund procedures, the Central Board of Direct Taxes (CBDT) on Friday announced launching a pilot project by designating a bank as a refund banker.

The rationale behind the move is to do away with the system of manual refunds of tax through officers authorised to issue income tax refund orders (ITROs). The decision has come in the wake of the recent I-T refund scam in Delhi, when fake refund vouchers running into crores of rupees were encashed. Investigations had shown some tax officers were also involved in the scam.

The refund bank will now directly issue refunds to the bank account of the taxpayer through the electronic clearance scheme (ECS). ECS is at present operational in 25 cities of the country, however without the system of a refund banker.

Sources said the I-T department is likely to tie up with State Bank of India to act as the refund banker. A pilot-run is scheduled for January to March, 2007, to ensure the entire process runs smoothly and to ensure the problems faced in e-filing of corporate returns do not dog this system as well.

The CBDT has also made it mandatory for taxpayers to quote their account details in their tax returns. This will ensure they get their refunds quickly and safely. Tax authorities also found many returns filed without correct bank account numbers and this has created a lot of confusion.

The tax authorities have recently taken a number of measures to prevent fraudulent encashment of refunds. Significant amongst these is the cross verification of high-value refunds by the clearing bank from the issuing officer in the I-T department. The move is likely to have a great impact on taxpayers considering the fact that in 2004-05, over 6 lakh I-T returns were filed involving over Rs 1,300,000 crore.