Govt takes a big leap in tax administration

Writes off income tax arrears up to Rs 100

The income tax (I-T) department has decided to waive tax arrears up to Rs 100 for individuals struggling with small dues.

The unprecedented step by the Central Board of Direct Taxes (CBDT) has been approved by Finance Minister Arun Jaitley.

The government will forgo Rs 7 crore in tax revenue but will be able to close 1.8 million cases, making up for over 10 per cent of total I-T arrears entries by volume. The move will also ensure smoother tax refunds.

“Most of these cases are older than three years. It will de-clutter our database,” an official said. He added the move was aimed at focussing on the big default accounts.

“The exercise may be expanded going forward,” another official said.

Cost of collection

Jaitley has approved the move under the Delegation of Power Rules, 1978, which empower the finance minister to write off any tax due. The rules allow chief commissioners of I-T to write off arrears up to Rs 25 lakh.

“It is a good move. If collection costs too much, it is a burden on taxpayers. But this should not be seen as an encouragement to not pay taxes,” said Rahul Garg, leader, direct tax, PwC.

Around 2.2 million cases of tax arrears involve amounts between Rs 100 and Rs 5,000. Widening the initiative will promote a friendlier tax regime.

“Such petty dues affect tax refunds,” said the official. “The cost of recovery is higher than the pending amount in many cases.”

Earlier in the financial year, the government expedited refunds of up to Rs 5,000 and cases where the amount in arrears was up to Rs 5,000.

The Centralised Processing Centre (CPC) of the I-T department has processed over 41.9 million tax returns and issued over Rs 1.62 crore in refunds during the current financial year. This is 40 per cent higher than the corresponding period of the previous year. Of these, around 92 per cent of the refunds were below Rs 50,000.