Modi govt's promise on tax terrorism lies in tatters even after 4-year rule

Although most courts have ruled in favour of societies, tax department continues to tax the hardship allowance developers pay

One of the biggest promises made by the National Democratic Alliance government, in 2014, was the end of tax terrorism. Four years later, that promise lies in tatters. Even the most ardent followers would concede that the Income Tax Department has been given unreasonable targets, leading to high-pitched assessments for all tax payers. The basic idea is to force the tax payer to pay at least 20 per cent of the disputed demand, even as the appeal proceedings are held up 

indefinitely. 

In fact, the pressure to get revenue by any means is so great that the tax department is reportedly asking many banks to pay up the tax deductible at source (TDS) for the month of March 2018, before March 31, 2018 itself. The TDS is due only by end of April 2018.

Harsh Roongta

While this might assist in showing higher collections for this year, it will leave a bigger hole for the next year. But, of course, the officials would have been changed by then. So, it will be someone else’s problem. 

Most feel that only companies face such issues. Unfortunately, even middle-class persons have been caught in this mad rush to shore up the government’s revenues. 

Unused land is a scarce commodity in Mumbai. Hence, most of the new constructions in the main city and suburbs are by demolishing old buildings and building afresh on the plot. Since the FSI available has gone up several times in the past few decades, developers were able to pay reasonable amounts as ‘hardship compensation’ to the existing flat owners. This was in addition to giving brand new flats in the newly- built buildings.  

The tax department naturally wants to get its share of these proceeds. But most court decisions have gone against it. What is frustrating is the way the I-T department has gone about this. First, they tax the cooperative housing society for the ‘hardship allowance’ received by the members, even though it is paid directly to members by developers. When the Society went for appeal, the taxman asked them to cough up 20 per cent of the disputed amount.

This runs into millions of rupees. Once this was paid, the taxman, then, reopened the assessment of members in the society and sought to tax the ‘hardship allowance’ in their hands as well. When you go for appeal…yes… another 20 per cent goes into the coffers of the I-T department. In quite a few cases, the tax officer of the Society and the member was the same person.

The irony: given the past court judgments, there is a strong likelihood that both the Society as well as the members’ respective appeals would succeed. Then, they will have to chase the department for refunds. 

It is this kind of behaviour that encourages people to lose faith in honesty. Like the previous government, the current government may also feel that the pinch felt by these ‘rich’ tax payers will not affect their political fortunes as they are too few in numbers to matter politically. But this definitely does affect sentiment, and the investment climate, as the tax department is seen as a hostile player.

The writer is a Sebi-registered investment advisor