Income Tax - Interest on Refunds - Not Properly Accounted - CAG
INTEREST payment is a charge on the Consolidated Fund of India and is, therefore, payable through a proper budgetary mechanism. Accordingly, Minor Head "interest on refunds" is to be operated under the Major Head "2020-Collection of Taxes on Income and Expenditure".
However, CAG notes that no budget provision for ‘interest on refund' was made in the Budget Estimates for 2010-11 and the expenditure on interest on refunds amounting to Rs. 10,499.4 crore was treated as reduction in revenue. Accounting of interest on refund as reduction in revenue is incorrect as this interest was never collected in the first instance. Interest on belated refunds of excess tax should be budgeted as an expenditure item which, in fact, was done in the Budget Estimates 2001-02 when Rs. 92 crore was provided in the demand of ‘Direct Taxes' under the Major Head ‘2020 – Collection of taxes on Income & Expenditure' towards interest on belated refund of excess tax. However, subsequently at the Revised Estimates stage the earlier practice of showing the interest on excess refund as deduct receipt was reverted to. This practice is still being followed.
On CAG's objection, the Department stated that this is a policy decision taken at the highest level.