TDS scam worth Rs 32 bn: How 447 companies hoodwinked employees, tax dept

The income tax department has initiated prosecution against these firms and has issued warrants in some cases

Weeks after the Punjab National Bank (PNB) disclosed the country's biggest loan default, which shook confidence in India's state-dominated banking system, the Income Tax department on Monday dug-up another scam that may leave taxpayers in shock. I-T department unearthed a Rs 32 billion (Rs 3,200 crore) scam where 447 companies deducted tax from its employees. However, instead of depositing with the government, the companies diverted the money to further their business interests.

Who are the offenders?

According to TOI, the offenders mainly include builders. One of the offenders has strong political connections and is responsible for diverting Rs 1 billion collected from employees for business purposes.

Other offenders are from sectors like film production, start-ups and infrastructure companies.

How did I-T detect the scam

The TDS (Tax Deducted at Source) wing of Income Tax carried out a verification survey for the period April 2017 to March 2018, which detected that in about 447 cases, Rs 32 billion was deducted by the companies but not deposited into the government account. These companies are under a legal obligation under the Income Tax Act to deduct TDS on behalf of the government and deposit it into the government account within a prescribed time frame.

What action has I-T taken so far

The income tax department has initiated prosecution against these firms and in some cases, warrants have been issued.  Under the Income Tax Act, the offences attract a minimum punishment of rigorous imprisonment of three months to a maximum of seven years with fine. Prosecution is initiated under Section 276 B.

The tax department has initiated recovery actions and is contemplating adding IPC Sections of cheating and criminal breach of trust as this act amounts to duping its employees.

Impact on employees

— TDS makes filing IT returns easier

— If it is not deposited with the government, there will be a mismatch. The Income Tax website would show you are yet to pay the tax

— Which means start litigation or pay from your pocket

— Ignoring the mismatch will cause trouble.

What employees can do

In 2016, the government launched an SMS alert service through which, employees get alert on TDS collected by the government. Employees can match their salary slip with SMS at year-end. If there is a mismatch, then they can get it cleared.