Around 500,000 taxpayers get I-T department alert for low advance tax

'Intimation' comes ahead of tax payment due date

The income tax (I-T) department issued intimations to an estimated 500,000 taxpayers between April and August this year over “zero” and “lower advance tax payment”. The department sent these intimations after analysing “significant transaction” data for the previous financial year and the first quarter of the current financial year.

The department’s analysis flagged around 2.5 million cases where there were no or less advance tax payments in FY23 by those taxpayers who had significant income and made high-value purchases. In several cases, the advance tax payment in the first quarter (April-June) of the current financial year indicated that taxpayers paid lower taxes when compared to their high-value spends, indicating mismatch, an official privy to the development told Business Standard.

The move comes ahead of the second instalment of advance tax due on September 15. Sources said that taxpayers escaping advance tax payment have increased significantly in the past three-four years, and such a drive will help deter non-compliance by assessees. Advance taxes are paid in four instalments in June, September, December, and March. These payments are based on taxpayers’ assessment of projected income and they provide an indication of the possible tax collection in the months ahead.

Typically 15 per cent of the tax liability is paid in June, 45 per cent by September, 75 per cent by December, and a full payment by March.

With gross tax revenue between April and July up only 2.8 per cent year-on-year and net revenue witnessing a contraction of nearly 13 per cent, the government is looking at plugging leakages in direct taxes.

“This serves the twin purpose of accelerating tax receipts for the government during the financial year, as well as raising a red flag to relevant taxpayers to discharge taxes due on a timely basis,” said Sudhir Kapadia, national tax leader, EY India.

"After analysing relevant data on ‘high value’ purchases, revenue may be able to extrapolate likely taxable income against the PAN-linked purchases. In instances where the revenue department finds that a taxpayer has paid a much lower amount of advance tax in the first instalment (due on 15 June), it may send intimation to those taxpayers to nudge them for a timely and proper amount of advance tax payment,” Kapadia explained.

Some of the cases that received intimation included assessees who had significant income in FY23 in sectors, such as pharmaceuticals, health care, and chemicals, but their projected income was comparatively lower and even payment made in the first instalment was less.

Intimations are being also received by assessees who made significant profits in the stock market in the preceding year and acquired high-value immovable assets and vehicles, highlighting a possible disproportionate income-to-investment ratio.

“This could be due to several factors, such as a weaker rupee, inflation, high interest costs, and overall high costs resulting in lower than estimated income for the financial year,” said Mitil Choksi, senior partner at Chokshi & Chokshi LLP, a chartered accountants firm.

The I-T authorities are on an information-seeking drive either through channels of internal data processing (specified financial rransactions/annual information statement/tax information statement) based on PAN, ensuring that taxpayers should not under-report their income in tax filing.

The significant transaction is typically such a transaction when there is a purchase of goods worth lakhs of rupees, stated turnover of 10 crore, purchase/ sale of immovable properties, withdrawal cash from bank/post office above Rs 20 lakh, payment via credit card of Rs 10 lakh and above, and so on.