I-T self-assessment filings under lens

Officials say many firms, individuals are postponing advance tax payment to last quarter of FY18

The income-tax (I-T) department is suspecting that taxpayers are understating their advance tax liabilities under self-assessment in the early quarters of the year and showing them as tax on additional income or windfall gains at the end of the financial year. 

Tax officials have sought an explanation from several corporates and individuals who have filed their self-assessment in the last three years, according to sources.  

“The I-T laws allow self-assessment, but only up to a certain extent. Assessees can’t use this mode to adjust their ‘gains’ which they have not considered while paying advance tax,” said a top I-T official. 

There are two possible explanations. Either the assessees are not clear about their revenue projection or are deferring the advance payment to hide a portion of their income, the official added.

Seeing it as a regular practice, the tax department has asked taxpayers to explain the mode of computation on the basis of which they arrived at their taxable income. “In some of the cases, we have observed differences between the income and the expenses by the assessees, and in that case, they have to justify the earnings and source of money which has been used for investments,” said an assessment officer.

According to him, if the final computation of income at the end of the fiscal year varies significantly from the estimates filed, the variance creates a doubt during the assessment proceedings.

The move follows deferment in the advance tax payment and, at the same time, a significant increase in the self-assessment by persons. Typically, the self-assessment tax is paid by an entity in the case of income from sources where tax has not been deducted. This could also be that the person has missed out an income when making the tax payment in the form of advance tax. In some cases there could be a possibility, especially in the salaried class, that the tax was deducted at a rate lower than the applicable one on the I-T filing. 

This move is also triggered by muted advance tax collections in the September instalment. While the entire data are not available, the tax payment of the top 45 Mumbai corporates was 10.6 per cent higher, which is tepid, said I-T sources. 

The overall mop-up at Rs 69,000 crore is disappointing, as state-owned banks paid lower taxes on a year-on-year basis even though sectors like steel and private sector lenders did comparatively well, PTI reported. 

This move is likely to irk India Inc as companies are already grappling with the new Central Board of Direct Taxes directive, which said that taxpayers who have to get their accounts audited would be required to submit their income estimates and tax liabilities for the first half of the financial year 2017-18 to the I-T department by November 15.

The self-assessment query would come at a time when businesses are struggling to cope with issues related to the goods and services tax regime. 

“Even though the new drive of the I-T department is aimed at checking deference in paying tax or identifying possible tax evasion, it is unlikely to make much difference, as there is little scope for most companies to misuse the self-assessment concept because their results are anyway audited,” said a chartered accountant.

However, some experts said that the notification was aimed at bringing about transparency. 

“There could be variation in the advance tax payment, but that depends on the underlying business performance and revenue trend. By virtue of the proposed mechanism, the department would get real-time data which would help in capturing and monitoring taxpayer trends better and also in estimating taxes for the government,” said Garima Pande, partner and national leader, EY India.

According to I-T laws, taxpayers are liable to pay interest on deferment of advance tax in case of a shortfall of the prescribed percentage.

Advance tax should be paid if the tax liability for a financial year is more than Rs 10,000. Such tax shall be paid within the same year on the basis of self-assessment. Any assessee liable to pay advance tax shall pay it by the due date as specified.

THE BIG REVEAL

• I-T seeks explanation for deferring advance tax payment 
• Suspects taxpayers hiding certain income under self-assessment  
• Taxpayers need to explain reason for windfall gains in last quarter
• Taxpayers to make advance tax payment within due date