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| Finance Minister Jaswant Singh has been forced to step in to resolve a tussle between the department of economic affairs and the Central Board of Direct Taxes (CBDT) over a reduction in the interest rate on direct tax refunds.
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| The CBDT offers an interest rate of 8 per cent on refunds. The department of economic affairs has been pushing for linking the interest rate to the average yield on 364-day Treasury Bills, which stands at around 6 per cent for 2002-03.
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| A change in the rate will require an amendment to the Finance Act. The CBDT is, however, against a cut in the rate.
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| As both the CBDT and the department of economic affairs had stuck to their views, it was left to Singh to take a final decision, finance ministry sources said.
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| In the first three months of this fiscal, refunds on direct tax collections topped Rs 12,000 crore, and corporate tax refunds accounted for over three-fourths of it.
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| Given the 8 per cent interest rate offered on delayed refunds, corporates find it very attractive to park their idle funds with the exchequer by making higher advance tax payments.
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| The CBDT also encourages companies to pay more in the last quarter of every fiscal to show better revenue collections.
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| Moreover, corporates are required to pay at least 90 per cent of their tax liability in four instalments to the government.
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| As corporates have to pay a penalty of 15 per cent if the shortfall in their liability exceeds 10 per cent of the tax assessed by the department, they generally pay in excess.
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| Incidentally, the Central Board of Excise and Customs (CBEC), in its meeting last week, recommended a cut in the interest rate on refunds from 8 per cent to 6 per cent. However, a cut in the rate by the CBEC does not require an amendment to the Finance Act.
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CBDT sources said since the rate was cut as recently as in 2001, the board would consider a further reduction in the interest rate only in the next year
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