The Finance Ministry has disclosed to the Public Accounts Committee (PAC) headed by Murli Manohar Joshi that the UPA Government paid Rs 37,365 crore in interest on refunds of excess taxes it collected from 2006-07 to 2010-11. “The lucrative rate of interest on refunds makes it a win-win for large tax payers and tax authorities,” highly-placed Finance Ministry sources told The Hindu.

The interest is paid at the rate of 0.5 percent a month or 6 percent a year. In comparison, bank savings deposits earn interest at the rate of 4 percent to 6 percent a year. Tax refunds that are lower than ten percent of the tax determined, however, do not earn any interest under the rules. The period of delay in the refunds attributable to the assessee is excluded from that on which interest is payable.

The interest payments, according to the PAC report dated January 31, 2014, “were incurred without the authorisation of Parliament”. It also states that the committee finds that the Department of Revenue has no option but to seek ex ante or ex posto facto Parliamentary approval for interest payments on tax refunds.

“In the budget of 2001-02, the interest on refund of excess tax was shown ...a provision of Rs 92 crore was made,” says the PAC report. “This practice was discontinued from the year 2003-04 onwards... after due approval of the then Finance Minister,” the report says. Budget 2003-04 was presented by the National Democratic Alliance Finance Minister Jaswant Singh.

Tax officials obtain “taxes in excess of the actual dues from tax payers in low-revenue years to make collections look as good as the budget projections; this makes the Government’s cash flows comfortable,” the sources said. “However, the interest Government later pays on the refunds to tax payers for the excess collected is a heavy price to pay for this.”

The sum of Rs 36,365 crore that the UPA Government spent on interest payments is more than the annual allocations it made to key aam admi schemes: For instance, the current year’s budget had allocated to the Mahatma Gandhi National Rural Employment Guarantee Scheme Rs 33,000 crore. The Pradhan Mantri Gram Sadak Yojana, was given Rs 21,700 crore and Indira Awas Yojana, Rs 15,184 crore. The budget allocation to the Ministry of Drinking Water and Sanitation was Rs 15,260 crore.

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