Companies that habitually pay excess advance tax may come under scrutiny of the Income Tax department.

The Public Accounts Committee of Parliament has recommended the measure to stem the flow of interest paid by the income tax department.

The committee, which examined the report of the Comptroller and Auditor General on tax refunds, said the income tax department should conduct a study on the trends in advance tax payment.

This is necessary to identify the major refund claimants and to rationalise the procedure for advance tax payment.

The PAC report tabled in Parliament on Monday coincided with the last day for corporate India to pay its third installment of advance tax for 2003-04.

Companies pay their taxes in four installments in a year. Advance tax accounts for more than 60 per cent of the total corporate tax paid in any year.

Of the Rs 48,600 crore (Rs 486 billion) of corporate tax budgeted for this fiscal, nearly Rs 30,000 crore (Rs 300 billion) will accrue from advance tax.

By September 15, corporates had paid Rs 6,503.01 crore (Rs 65.03 billion) as corporate tax, against Rs 5,464.29 crore (Rs 65.64 billion) in 2002-03, a rise of 19 per cent.

The committee, headed by Buta Singh, said it was "perturbed to note that many public sector undertakings were claimants for refunds as they were paying excess advance tax to bypass their responsibility".

The department paid 8 per cent interest on refunds till the middle of this year, an attractive return for companies. But the finance ministry subsequently lowered the rate of interest on refunds on direct tax to 6 per cent.

Finance Minister Jaswant Singh had said to ensure better tax compliance, the finance ministry would ensure that all tax refunds were made in four months. He had also asked for clearance of all pending refunds even at the cost of growth in tax revenue.

It is largely because of this that refunds in 2003-04 have soared 30 per cent over last year's level.