The income-tax departments step towards automation has made life a little difficult for taxpayers, especially companies. Its recent move to shift to a system of e-filing of returns has blocked tax refunds, sources said. Due to a mismatch between the TDS (tax deducted at source) software and the regular tax refund system, the department is not in a position to process refund orders, they said.

Companies file TDS returns through the National Securities Depository (NSDL) network which is not compatible with the I-T departments refund system. When asked about the problem, chief income-tax commissioner NB Singh said: There is a problem with the refunds. We are trying to rectify it.

Company sources said due to the mismatch, crores of rupees are stuck in the system. The tax department has taken a stance that unless NSDL updates the data, it cannot process the TDS repayment requests. NSDL, the largest depository in India, handles most of the stock market transactions in the dematerialised form.

According to the sources, the problem that surfaced in April has stalled refunds due to several taxpayers. The income-tax department pays a 6% interest on the refund amount for any delay in repayment.

At the same time, the interest for delayed payments is 12%. Since the interest offered on refunds is less than the market rate, the delay has adversely affected the liquidity of companies. Close to Rs 1-crore refund of one of my clients is blocked by the department for no fault of his, said Nilesh Kapadia, a chartered accountant.

The government made it mandatory for companies to file their TDS returns electronically from 2006-07. Senior chartered accountant TP Ostwal said: The department should have given a one-year grace period before shifting to e-filing of returns.