Income Tax department warning salaried class against filing wrong ITRs will not go down well

This may be good economics but not ideal governance and definitely not good politics, especially when Karnataka Assembly polls are round the corner.

 |  5-minute read |   19-04-2018
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There are two contrasting ways of looking at the Income Tax department's latest missive of putting even the salaried employees on the radar screens of tax sleuths. The missive has cautioned salaried taxpayers against using illegal means such as under-reporting of income or inflating deductions while filing their returns. The department has gone to the extent of warning of dire consequences which could include criminal prosecution too.

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One way of looking at this is that it's a good move aimed at plugging some holes of the leaking bucket and ensuring that even the salaried class doesn't cross the line by filing wrong information in the Income Tax Returns (ITRs).

Another way is to look at the bigger picture in which the government is acting tough and using the language of threats against the salaried class, the bulk of which is tax compliant and law abiding. This may be good economics but not ideal governance and definitely not good politics, especially when Karnataka Assembly polls are just three weeks away and general elections too are not very far.

The IT department has upped its ante vis-à-vis the salaried class after a few cases came to light in January in Bengaluru as the department busted a racket of extracting fraudulent tax refunds by employees of several big companies such as IBM, Vodafone, Infosys and Thomson Reuters in alleged connivance with a fake chartered accountant.

The Bengaluru case has been handed over to the Central Bureau of Investigation (CBI) which has lodged a FIR. The case of revised tax returns fraud pertains to 1,010 revised tax returns which were filed using forged documents in the name of 250 taxpayers of various private firms, during three assessment years and refunds amounting to Rs 18 crore were claimed illegally. A few IT officials and a few staffers of Infosys colluded with the fake CA. The IT department has reasons to believe that this trend of filing illegal tax refunds may be more pervasive and the actual figure of tax evaded thus may run into hundreds of crores of rupees. However, the actual extent of this racket is not yet known.

The IT department still needs to get its act together to gauge the actual magnitude of this financial irregularity at the national level.

But as per the principles of natural justice a suspect or an accused is deemed innocent until proven guilty. Thus, the government is putting the entire salaried class in the dock which will inevitably not be liked by crores of salaried taxpayers.

It would have been better if the IT department had done its homework and assessed the total magnitude of illegal tax refunds at the national level before wielding the stick. Informatively, as per the latest income tax collection data of all taxpayers for the assessment year 2014-15, the total number of income tax returns filed was over 3.91 crore. The total tax payable was over Rs 4 lakh crore.

The IT department's warning to salaried-class taxpayers against using illegal means while filing their returns has the following highlights:

1) The violators will be prosecuted and their employers will be intimated to take action against them.

2) No under-reporting of income or inflating of deductions, "aided and abetted by unscrupulous intermediaries (read CAs)… (which) have been noted with concern".

3) Wrong claims to be treated as cases of tax evasion, a punishable offence under various penal and prosecution provisions of the Income Tax Act. "Taxpayers, are, therefore strictly advised not to fall prey to false promises or mis-advice by unscrupulous intermediaries and submit wrong claims in their ITRs, which would be treated as cases of tax evasion," as per the IT department's advisory.

4) This advisory applies to government employees as well as public sector employees, who will be proceeded against as per the existing conduct rules, if caught. The advisory warns that the IT department possesses an "extensive risk analysis system", an automated system that has no human interface.

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5) Punishment for "tax advisers and planners" (read CAs) and violators will be referred to enforcement agencies like the CBI and the Enforcement Directorate (ED) for criminal prosecution.

6) Providing break-up of salary in ITR has now been made mandatory. For example, the new ITR form for the assessment year 2018-19, uploaded on IT department's website on April 16, asks salaried class assessees to provide their salary break-up, salary details in separate fields and in a break-up format such as allowances that are not exempted, value of perquisites, profit in lieu of salary and deductions claimed under section 16, while businessmen have to write their GST number and turnover.

The gist of this all is that an income tax assessee not only needs to be tax-compliant, but also needs to be more cautious in filing IT returns because ignorance is not condonable. Therefore, henceforth taxpayers will have to be extra cautious about such sections of Chapter VI-A of the Income Tax Act as Tax Saving Investment, Education loan interest, Mediclaim policies, Rajiv Gandhi Equity Saving Scheme, donations under sections 80G, 80GGA, 80GGC or other deductions relating to disability or medical treatment of certain illnesses because these are the favourite pastures of chartered accountants for tweaking ITRs to cause illegal windfall for tax payers in return of 10 or 20 per cent commission on tax thus refunded.

On 30 June, 2017, in his speech on the eve of the Chartered Accountant Day, Prime Minister Narendra Modi had quoted Chanakya and what Bhishma told Yudhishthira in Mahabharata's Shanti Parva explaining raj dharma. He said that a government should collect taxes in the manner a honeybee collects honey from the flowers. Chanakya had also said that a kingdom whose king is greedy is not worth living in.

Perhaps, the IT department and finance ministry honchos forgot about this speech of PM Modi when they targeted the salaried class with the latest advisory.

Also read: Was the Supreme Court website hacked?

Writer

Rajeev Sharma Rajeev Sharma @kishkindha

The writer is an independent journalist and a strategic analyst.

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