Tuesday, February 27, 2007

Gimmee my money - Law Street in The Economic Times (February)

Are you still waiting for your refund cheque from the tax department. Well so is Zenobia Aunty. To read more, click here.

As always, for your convenience, the column is also cut and pasted below.

Gimme my money!

Lubna Kably


I recall an ad that has stuck in my memory. Gimme Red! I think it was an ad for Eveready Batteries. Exotic energy drinks like Red Bull were not available in that time and age. This was the era when Rasna ruled, where a cute kid repeatedly said: We love you Rasna!

Enough said about the ad world. After all this is a tax related column. Now it is perhaps time to take a cue from the Eveready ad, but to say it differently: Gimme my money! The US based IRS is doing just that this year. It is all set to make significant refunds during the year 2007. It is expected that more than 160 million tax payers will seek a “Telephone Excise Tax Refund” while filing their tax returns for the financial year 2006 (The financial year in the US is the calendar year). Economists at the US Department of Treasury estimate that the amount refunded to individuals will be about USD 10 billion.

This refund pertains to taxes paid on long distance or bundled services for which the users were billed during the period between Feb 28, 2003 and August 1, 2006. Federal courts have held that tax could not be imposed on such calls, hence the refund.

A standard refund amount can be claimed while filing the tax return. If any taxes are payable this would go towards reducing the tax burden immediately at the time of computation of tax payable for the year 2006.

Tax refunds are a sensitive issue for my Zenobia Aunty. Even her charisma has been unable to help her, when it comes to claiming tax refunds.

As FICCI rightly points out in its pre budget memorandum: In spite of streamlining the refund procedure, the refund amount is not being credited into the tax payers bank accounts specifically mentioned in the tax returns.

Refund vouchers, at times, pre-dated, to escape the interest liability, are sought to be handed over personally to the tax payer for obvious reasons. Tax Officers should be obliged to give credit to the bank account provided by the tax payers and be held accountable for any defaults in this regard, adds FICCI.

The story as regards interest on tax refunds is no different. Section 244A provides for payment of interest at 6 per cent for delay in grant of refund. However, no time limit is prescribed within which the appeal effect is to be given and refund to the granted by the tax officer.

Provisions should be introduced in the tax laws stipulating that effect be given to the order of the higher tax authorities, tribunals, courts within a prescribed period, especially in refund cases. Incidentally the Citizen Charter of the Income tax Department which was rolled out with much fan fare a couple of years ago, calls for giving effect to appellate orders within 30 days of the receipt of such orders and issue of refunds within 30 days of its determination.

The Right to Information Act, 2005 (RTI Act) could prove handy to Zenobia Aunty. Her friend, Narayan Varma, a Mumbai based chartered accountant, quoted in several newspapers including sister publications of this paper, has successfully obtained refunds by taking this path.

In effect, it means politely asking where the refunds are stuck. Bombay Chartered Accountants Society is providing service to the aggrieved tax payers by holding tax clinics and educating people on how to take recourse to the RTI Act

In respect of all requests received from citizens under the RTI Act, the respective Chief Public Information Officer has to provide the information within 30 days of receiving the request, failing which there is a penalty imposed on him. An appellate mechanism is also available to the applicant who has sought the information.

All this is fine, but is it fair, that tax payers have to tread on another path to seek what is rightfully theirs – their very own tax refund?

The process is in place, bank account numbers are to be provided in tax returns. All it requires is change of law to ensure that relief orders are actioned upon within a specified period of time and that in all instances there is a direct credit to the bank account of the tax payer within this prescribed period of time. If the IRS can deal with 160 million tax payers and their refund claims, I do not see why we cannot.

The Citizens Charter calls upon us to be prompt, honest and accurate; to pay our taxes in time and to quote our PAN in all our tax returns and correspondence. But I guess, reciprocity is the key word here. Honest tax payers deserve their due – that of getting their timely tax refunds with the correct interest.

(The author is a chartered accountant. Views are personal)

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