In Q1, direct tax refunds down 16% to ~64K cr

Direct tax refunds fell 16 per cent in the first quarter of the current fiscal year (Q1FY21), despite the government having fast-tracked the process. Refunds, or cash outflow from the income tax department, stood at ~64,428 crore at the end of June 2020, compared to ~76,575 crore at end-june 2019.

Tax officials have attributed the decline to slim attendance (caused by the lockdown), which, according to them, led to a delay in clearance of large refunds that require officers’ approval. To fight the economic fallout of Covid, the government had expedited refunds of up to ~5 lakh. The Central Board of Direct Taxes (CBDT), in a statement on Friday, said tax refunds had been issued at a speed of 76 cases per minute between April 8 and June 30. “During this period, the CBDT issued refunds amounting to more than ~62,361 crore.”

Corporation tax refunds stood at ~40,482 crore, while income tax refunds stood at ~23,828 crore in Q1FY21.

“Taxpayers are experiencing this facet of the I-T department, which is not just taxpayer-friendly but also one of a facilitator providing liquidity in such hard times,” said a CBDT release.

Refunds of such magnitude have been issued completely electronically, and have been directly deposited into bank accounts of taxpayers, it added.

“…taxpayers should provide immediate response to emails by the department, so that refunds in their cases may be processed and issued right away. Such emails by the I-T department seeks taxpayers to confirm their outstanding demand, their bank account number, and reconciliation of defect/mismatch prior to the issue of refund,” the CBDT release added. Low refunds indicate higher net direct tax collection, even as gross collection remains weak. “While small refunds issued by the system are getting cleared quickly, the large refunds, or those requiring officers’ approval, are the ones pending. Officers’ attendance has been 15-20 per cent in key jurisdictions because of Covid,” said a tax officer.

The sum also includes adjustments made by the department for outstanding demand for other years.

Amit Maheshwari, partner at AKM Global, said: “The decline in refunds could be on account of a couple of reasons. First, cases in which manual intervention is required for the release of refunds will be moving slow as the department is not working i n full capacity. Second, in cases where a notice for scrutiny assessment has been issued, Section 241A empowers assessing officers (AOS) to hold refunds with prior approval of the Commissioner, if it is likely to adversely impact revenue.”

Over ~35,000 crore of refunds have been stuck due to cases having been held up for scrutiny. The moment a case is picked up for scrutiny, the refund is blocked.

“There has been no administrative instruction to clear refunds for cases picked up for scrutiny, or the ones pending at the AOS’ end,” said a government official.

Net direct tax collection fell 25 per cent to ~1.25 trillion up to June 15, as advance tax collections dipped around 40 per cent during this period year-on-year.