Wednesday 8 May 2013

Incometax Departments new Strategy to lure new assessees and to catch evaders

Is it difficult to conceal any thing from Incometax Department?

The technological development and computerisation in the country for last two decades make it difficult to conceal any thing relating to monetary transactions from the prying eyes of the Incometax Department. 

Whenever you make any cash deposit of Rs50000 and above in any Bank, you have to furnish the PAN no issued to you.

 Similarly whenever you make a fixed deposit and the interest on such deposits exceed Rs.10000 in an year, you have to give the PAN to your bank either with without Form no 15H or Form no 15G.

Whenever you buy jewellery or get a credit card or open a new Saving Account, you have to give PAN. Again when ask for Locker with your local neighbourhood bank, he asks you for you PAN as KYC document.

 Now a days, even to make  mutual Fund investments or to buy new Insurance Policy, you have to give a copy of your PAN, as a know your customer document. The Government had slowly brought in these tools to catch hold of the tax evaders and now getting at them through data mining. 

Many of you may not know, that the Incometax department has a software called 360 degree profiling. Through this software, the department will be able to look into all the transactions that you have entered into, using the PAN nos.


The department is using this tool in big cases to get at the tax dodgers.

There are other ways of collecting information by the department. There is a wing called CIB. ie Collection of Information Bureau, working under the Director General of Incometax. This is the wing that conducts searches.


This branch collects information from various sources. I have come across the collection of information of about buyers of luxurious cars from the Dealers, flats from builders etc. It also collects information about the huge fees paid by the students of various self financing medical, dental and engineering colleges. This branch collects information about the huge expenditure incurred by the tax payers in various walks of like and later passes on those information to the Incometax Officers. This information will be used in selecting the cases for scrutiny and for making additions, if income commensurate with the expenditure incurred is not disclosed in the returns of income filed.

Simliarly there is another way of collection of information by the department. ie Annual Information Return. This is filed by the Sub Registrar who registers the transfer of properties when you buy or sell immovable assets with a guideline value exceeding Rs.30 lacs. From the bankers when cash deposits exceeding Rs. 10 lacs is made in a savings account. From credit card companies when expenditure exceeding Rs. 2 lacs is incurred through a credit card. From a Limited Company when you invest more than Rs one lac as share investment. From a Mutual Fund for any investment in any scheme of a sum exceeding Rs 2 lacs. From RBI for making any investment exceeding Rs. 5 lacs.


Many people relying on the advice document writers and unqualified professionals, show an amount, which is lower than Rs. 30 lacs as consideration for the property in the documents relating to the purchase or sale of immovable property. This is in correct. The figure of 30 lacs to be disclosed in the AIR by the Sub Registrar,is the value of the property as per the guideline value fixed by the State Government. When such lower consideration is disclosed by a person, in his return of income and ITO finds that AIR gives a higher figure, then his case will be taken for scrutiny. Or if the case relates to earlier returns the assessment will be reopened with severe consequences.

Again I have found that many bankers in the rural areas wrongly advice the customers to deposit cash exceeding Rs 10 lacs in an year stating that they will look after their welfare. However as almost all banks are on Core Banking Solutions, the AIR return by the Head Office, will reveal all these cash deposits to the Incometax Deposits leading to serious consequences to the depositors. 

To satisfy the KYC norms, these Managers obtain PAN number for agriculturists and get them into all these problems. You may question as to how an agriculturists get Rs 10 lacs to cash deposit. If he sells his turmeric produce of three years after keeping them in a godown, and if he gets a good, renumerative price for turmeric, such sums are possible. However it will be very difficult for him to appear before the Officers of the Department and to prove his agricultural income to such an extent.

These AIR returns filed annually by the above entities. This information becomes available to the Incometax Officers for selecting cases for scrutiny and for making additions after conducting further inquiry.


The department also have lot of data through the tds mechanism. Whoever had deducted tax on interest, commission, salary and rent etc would file tds returns every quarter giving the details of interest, commission, salary, rent etc paid and the amount of tds made. If you do disclose the above income, then the case will be selected for scrutiny and you are in for lot of difficulties. Similarly persons who have given Form no15 H and Form no 15G for non deduction of tds will be noted in the tds returns and these details also will be known to the department. About two years back, the department made it compulsory to quote PAN in these forms just get those who give these forms to the bank and later do not disclose the income to the department.


In addition to the above, the banks and financial institutions submit STRs ie suspicious transactions reports to the Financial Intelligence Unit from where the information is passed on to the Incometax Department. Huge cash deposits and huge cash withdrawals from bank would invite STRs.

According to some news paper reports, last year, I understand that, the department sent out 1 lakh tax notices to a list of 12 lakh persons identified as not filing their annual incometax returns, even though their expenditure patterns suggested the need to pay taxes.

 Based on data collected from a variety of sources — annual information returns or AIR in tax jargon — the department found, for instance, that 16 lakh persons made credit card payments of over Rs 2 lakh in FY13 and 52.4 lakh persons spent more than Rs 2 lakh buying mutual funds in that year. In response to these notices, however, the taxman has already got 1.25 lakh returns from people — some have added their spouses’ returns as well — and most have paid the taxes demanded.



The taxman’s new strategy is based on this recent success. The Incometax department now plans to send letters to all taxpayers every year in April-May, giving details of their PAN numbers, the taxes paid by them as well as various financial transactions captured by the AIR system during the year.

 A senior tax official said, “Though the letters sent to all the assesses and identified people outside the tax ambit will not be tax notices legally, the onus of acting on the information provided would certainly be on them.”



The department, however, will not stop at sending letters only to those who are already in the tax net; letters in the same format will also be sent to all those found to be making high-value transaction but not paying any tax and not filing returns.

With just 3.5 crore of the 11 crore who have PAN numbers filing tax returns, and the number of new ones more than halving between FY11 and FY12 — from 17.8 lakh in FY08, new assesses fell to 14.8 lakh in FY11 and to 7.2 lakh in FY12 — the disconnect between rising taxes and the number of taxpayers is getting stronger. In the last 10 years, direct tax collections have increased by more than 700%, while the number of taxpayers has grown by only about 35%. The personal income tax income slab of up to Rs 5 lakh comprises of 98.38% of total assesses, while the slab above Rs 20 lakh comprises a mere 0.38% of total assesses — 63% of the total income tax collected, though, comes from this bracket.


Personal income tax collection has grown from Rs 49,268 crore in FY05 to Rs 1,64,485 crore in FY12, the revised estimate for FY13 is Rs 1,99,930 crore, and the budget estimate for FY14 is pegged at Rs 2,40,919 crore.

The income tax department plans to roll out its new strategy quickly. “The architecture and design of the IT backbone for this is already in the works,” said the official, adding that it might happen in phases.

What do we learn from a reading of the above? We must keep record of all our  transactions and report the correct income through your CA to the Incometax Department.

 Don't ever think that the department cannot catch you. It will, in due course with severe consequences.

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