The Income Tax Department will refund about 40,000 crore by the end of April or early May, as part of the initiative by the Central Board of Direct Taxes (CBDT) to complete the entire refunding process in the very first month of a fiscal year.

This initiative comes as a big relief to taxpayers who earlier received refunds only in the last three months of a fiscal. The timely refund will also help the tax department save the interest it paid on the amount - at the rate of 1% per month.

Sources in the income-tax department said a major chunk of the refund dues have already been released.

The initiative, though taxpayer-friendly, was not without any resistance. Income-tax employees were unprepared to adjust to the sudden shift in focus from tax collection to refund distribution, given the prevailing constraints, including severe manpower shortage. However, a meeting in New Delhi last week between the representatives of the employees and CBDT chairman Sudhir Chandra resolved the conflict and the employees' unions gave their full support to the exercise.

The initiative for early completion of refunding came in the backdrop of a more than 20 % increase in tax collection last year. In fact, it was the first time in the last three years that the direct tax collection exceeded the revised target.

The first directive from CBDT was to complete the refund exercise by April 10. This was later extended to April 20. "Even if we complete the exercise by the first week of May, it will be a major achievement. We will streamline the process further so that from the next year all refunds are issued in early April itself," said an I-T official.

The Mumbai division, which accounts for 35-40% of the total tax collection in the country, is expected to refund of 15,000 crore by April 30. More than 60% of this has already been released.