The central government has done away with the practice of specifying the amount paid as interest on tax refunds in the expenditure budget. It has instead decided to net off the refunds, including the interest paid out of the gross tax receipts in the revenue budget.
The revenue department pays 9 per cent interest on refunds. The interest acts as an incentive for corporates to deposit higher advance tax and also helps the government to show a higher tax revenue in the revised Budget.
In the Budget for 2001-02, the government for the first time had shown Rs 230 crore interest paid on refunds as expenditure in the budget, including Rs 138 crore for indirect taxes and Rs 92 crore for direct taxes. In the explanatory note, it said,