From fake exemptions to old dues, CBDT tightens the tax net this year

With a record tax target this year, the CBDT is tightening scrutiny on top taxpayers, fake claims, and old dues while aiming for faster refunds and better taxpayer awareness.

The Central Board of Direct Taxes (CBDT), responsible for administering direct tax laws in India, has asked tax officers to keep a close eye on the country’s biggest taxpayers, news agency PTI has reported. The idea is to make sure that people and companies are paying the right amount of tax and not using fake exemptions or deductions to reduce their tax bills.

 

What is advance tax?

 

Advance tax is when individuals and businesses pay their taxes in parts throughout the year, instead of waiting until the end, also referred to as a pay-as-you-earn scheme. This helps the government get money regularly and prevent taxpayers from facing a large bill all at once.

 

Cracking down on fake exemptions

 

Tax officers have been asked to identify any false claims of tax exemptions or deductions, these are the amounts people subtract from their income to reduce the tax they owe. False claims reduce the government’s income, so plugging this gap is a key focus this year.

 

What are the consequences of using fake exemptions and deductions?

 

According to Naveen Wadhwa, vice president, Taxmann, “Using fake exemptions and deductions to reduce tax bills is a serious offence and can lead to severe consequences and penalties.” He mentioned a few of them:

 

The Assessing Officer may impose a penalty for misreporting and underreporting of income, which can be as high as 200 per cent of the tax sought to be evaded.

 

In addition to the penalty, the taxpayer may also be liable to pay interest on the tax liability. In severe cases, using fake exemptions and deductions can lead to prosecution.

 

Focusing on regions and old dues

 

The CBDT also wants to profile regions and districts to see which areas are contributing well to tax collection and which are falling behind. In areas with low tax collection, officers may take corrective steps.

 

A big part of this year’s plan is also recovering old tax dues. As of now, unpaid tax dues stand at ~ 4.81 trillion. Of this, ~1.95 trillion has already been confirmed by the first appeal authority and tax officers have been told to try and recover this amount as soon as possible.

 

Speeding up refunds, spreading awareness

 

Another key focus area is issuing refunds quickly. According to the data issued last year, the department issued a record ~4.76 trillion in refunds, 26 per cent more than the year before. Quick refunds help reduce the government’s interest payouts and also ease the burden on taxpayers.

 

According to the PTI report, tax officers will also run awareness campaigns to:

 

Help people understand what deductions they can and cannot claim

Guide them on how to file updated returns if they made mistakes earlier

Promote the new tax system, which offers lower rates but does not allow exemptions or deductions

 

According to PTI, the government has set a target of collecting ~2.52 trillion in direct taxes this year.

 

This includes:

 

~1.082 trillion from corporate tax (paid by companies)

~1.36 trillion from non-corporate taxes (mainly paid by individuals)

~78 billion from a tax on buying and selling of shares (called STT)

 

Last year, the tax department collected ~2.226 trillion. slightly short of the revised target, mostly because it issued a record number of refunds to taxpayers.