Delay in refunds from Income Tax department hurting cash-flow, say businessmen

Sections of entrepreneurs are complaining of a delay in getting refunds from the income tax department even as the finance ministry tweeted on Thursday that it has issued refunds of about Rs 80,086 crore since April 1 this year.

But several businessmen and their accountants said refunds are taking time in cases where the amount is more than Rs 1 crore. “These are mostly medium businessmen, and they say the delay is choking their working capital. Steep TDS rates are the reason for refunds piling up,” said one of them.

This situation is pushing some businessmen to go for expensive loans, a chartered accountant said.


Businesses are required to remit 10% TDS to the I-T department on receipt of the invoiced amount from a customer. "The 10% TDS coupled with the 18% GST works out to almost a third of the transaction value. In most deals of values over Rs 1 crore, the company would usually have a single digit margin. When the I-T authorities keep 10% TDS for a longer time, it creates serious liquidity issues," said Vivek Mallya, a CA in Bengaluru.

The I-T department pays a 6% interest on delayed refunds, but businessmen say short-term borrowings to overcome liquidity crunch comes at a higher cost, hurting margins.

An entrepreneur in Bengaluru said the department owes him about Rs 4 crore for the year ended March 2020, according to an intimation he received six months ago. But he has yet to get the refund.

R Ramakrishnan, a CA in Bengaluru, said the I-T department issued refunds swiftly regardless of their size from March to September last year, during the height of the Covid-19 pandemic. "But now, even in cases where refunds are processed, authorities are not sending cheques on one pretext or the other," he added.

Even in cases where refunds are processed, authorities are not sending cheques on one pretext or the other

-R Ramakrishnan, CA

Shailesh Monani, a partner at audit & consulting firm PW & Co, said corporates are facing issues even in situations where refunds have been determined as due. “One more practical issue which affects foreign companies is that they are now required to have a bank account in India to receive the refunds. Opening such a bank account is time-consuming and not easy for the foreign companies," he added.

Pradeep Goyal, a Delhi-based FCA, in a tweet, said

MSMEs are waiting for refunds for assessment year 2020-21, which, he said, have not been processed yet.

The I-T Act, 1961, under section 241A, empowers officials to withhold refund if the assessee has an ongoing assessment. "But I-T officials can invoke this provision only with prior approval from their higher-ups after recording the reason, with due intimation to the assessee. But that is not happening, as a result assessees are unable to contest,” Mallya said.

The I-T law contains provisions for permitting lower-withholding rate or nil withholding rates in some cases. But the department has been very reluctant to issue these orders even in fit cases, he added.