Recharge cards, airline agents under tax eye

Move follows directions to boost all-India tax collection.

The income tax (I-T) department conducted a survey of all major mobile telecom companies, with the idea of taxing discounted cash cards sold to retailers.

Mobile companies, noted the department, sell these cash cards to retailers at a discount but these are then sold to customers at the full price, earning a profit. “The companies should have deducted tax before selling cash cards to retailers,” said an official source.

This is a sequel to a broad direction from the Central Board of Direct Taxes to enhance searches and surveys to boost all-India tax collection, around Rs 2,65,000 crore till now this financial year, against a revised year’s target of Rs 4,00,000 crore. All-India tax collections were Rs 2,77,000 crore last year for the same period, said official sources.

The telecom survey was one of many by the I-T department on top tax-paying companies for mopping up tax deducted at source (TDS). The objective was to check if these companies were underpaying TDS on salaries from employees. The department is expecting a good collection on the heads of perquisites and reimbursements, the onus of which is on employees.

Another major area for a proposed survey are airlines companies who sell discounted tickets to travel agents, who then sell tickets at full value or slightly discounted value to customers. They not only earn a profit from sale of these tickets but also a commission on the total value of tickets sold. It has to be seen whether TDS is being deducted by the airline companies on sale of such discounted tickets, said the source.

Besides the TDS section of the department has already made a demand of Rs 117 crore on six third-party administrator (TPA) companies. A TPA is an organisation that processes insurance claims or certain aspects of employee benefits for a separate entity.

The department has collected Rs 35,510 crore from TDS in the Mumbai region this year till date (against total collections in the region of Rs 98,550 crore), against Rs 36,312 crore collected last year for the same period (of a total regional take of Rs 93,000 crore). The total target of collection for TDS this year for the region is Rs 58,000 crore. About 40 per cent of Mumbai’s total tax collections are from TDS, and the region also makes for the bulk of the all-India collections under this head.

The decline in TDS collection this financial year is due to several reasons, say official sources. They explained that among the major component of TDS, a surcharge of 10 per cent and education cess of 3 per cent on TDS payments had been removed in 2009-10. TDS on rent for land and buildings had come down from 15-20 per cent to 10 per cent, while rent on all other things are down to two per cent from the earlier 10 per cent.

Besides the downsizing of TDS rates, another factor the department observed in their surveys and searches are that most top tax-paying companies laid off workforce earlier this year and last year. Therefore, the base for paying TDS had gone down. On the other hand, the companies are showing better profit on a low base of expenses, which is helping in better advance tax collection.

“Primarily, advance tax is paid on income and profit, while TDS is incident on expenditure made by a company. Therefore, while advance tax collection has been good, TDS collection is hit,” said a source.