IT dept plans new measures to curb tax evasion

The Income Tax department plans to "immediately capture" on receipt the data of returns filed by taxpayers to enhance their investigation and enforcement action to curb tax evasion and reduce tax gap over the next few years.

The department is also mooting developing a "criminal investigation" system within its establishment to combat terror financing, money laundering, offshore tax evasion and other illegal trades which impact national security.

"Income Tax department intends to use innovative methods to supplement its traditional enforcement tools in order to reduce the tax gap during the strategic plan period 2011-15. A conscious effort will be made to move towards non-intrusive targeted enforcement tools," the 'Vision 2020' document of the department said.

The 30-page document, which charts out the course of action for the I-T department over next few years, was unveiled recently by Finance Minister Pranab Mukherjee. To achieve this objective, the I-T department will "make internal data available almost on real time basis by capturing data from paper returns immediately after receipt," the document said.

The department also aims at making internal data (of I-T) "robust and current" by including information gathered during enforcement action by the investigation wing and the assessing officers.

The I-T department, will also consider modification of Income Tax Return forms to capture relevant information to facilitate matching of external information, it added.

The department, which is currently probing a host of high-profile financial irregularities from and to overseas destinations, considers that the "next decade" will see an increased role (of I-T) in scrutinising" such transactions and fund flows.

"This will require the income tax department to deploy considerable resource and energy on criminal investigation. Effective criminal investigation will necessarily include a comprehensive international strategy to combat offshore tax evasion, and fund flows that threaten security of the country."

The document, which will undergo a mid-term review in 2013, aims at taking forward the strategic planning of the department and its policies from 2011-2015 along with the new Direct Taxes Code (DTC) which is proposed to replace the current Income Tax Act from next fiscal.

Direct Tax laws will be change in Next Budget

Saddled with huge tax arrears of Rs 2,50,000 crore -- more than half of the total tax collection projected for 2010-11 -- finance minister Pranab Mukherjee is likely to introduce in the forthcoming Budget some major changes in direct tax laws that could help in swift recovery of a significant portion of the arrears.The changes proposed include reducing the limits to approach Income Tax Settlement Commission (ITSC), allowing those who have faced I-T raids to approach the commission even if the demand raised against them is not hefty.Till last year, search cases were debarred from approaching the ITSC for settling their tax demand cases. The FM had in his 2010-11 Budget allowed these cases but the bar was kept at Rs 50 lakh and above, the tax demand raised. However, from this year, the government may reduce this and restore it to pre-2007 level of Rs 3 lakh in cases of search and survey cases and Rs 1 lakh for others.

Other changes proposed include measures to improve the functioning of the settlement mechanism under direct tax laws -- bringing all types of cases within the ambit of the ITSC and giving a security of tenure to the members of the commission. These changes may reflect in the forthcoming budget.The matter was discussed by the FM in a pre-Budget review meeting with senior officials of the Central Board of Direct Taxes (CBDT) last week. The CBDT is working on the details to be incorporated in the Budget.The FMs directive is to streamline the ITSC and make it a preferred mode of resolution for tax disputes, a senior CBDT official said. Mukherjee acknowledged the role of the settlement commission in reducing litigation with taxpayers and its potential for reducing tax arrears.

Out of the nearly Rs 2.50 lakh crore arrears, nearly Rs 99,000 crore is locked in tax disputes between the I-T department and taxpayers. The options were further squeezed when former FM P Chidambaram disempowered the ITSC in 2007 to take up search and survey cases.Till March 31, 2010 the total arrears were Rs 2.30 lakh crore, and in the new fiscal year another Rs 20,000 crore has been added to this figure. Last year, the department had managed to recover nearly Rs 12,000 crore while the target set for this year has been fixed at Rs 14,000 crore.To speed up the recovery process, the I-T department has circulated details of at least 550 high net worth individuals and entities -- who have willfully defaulted or have unpaid tax of Rs 25 crore and above -- to field officers for recovery, sources said. The tax arrears have doubled in the last two years to Rs 2.50 lakh crore, almost 66% of the total direct taxes collection of 2009-10.

2,000 Indian and mnc's are likely to lose the tax

2,000 Indian and multinational companies managing their own provident fund trusts are likely to lose the tax relief on contributions they make to the fund because of the labour ministry’s inefficiency.Employees at these firms, too, may be asked to pay tax from January on their contributions to the retirement fund.It is mandatory for companies in the country to deduct 12% of an employee’s basic pay and deposit it in the provident fund. Companies are also required to contribute a matching sum in the fund.PF contributions are usually tax-free. The finance ministry had in its 2006 Budget asked companies managing their own PF trusts to get an exemption licence from the state-run Employees Provident Fund Organisation to be able to retain the tax sop. It had given them one year to obtain the licence.But the deadline had to be extended several times as the labour ministry and the PF office failed to clear all the cases.In July 2009, finance minister Pranab Mukherjee had given the labour ministry 18 more months to clear the backlog.But labour ministry data secured by The Economic Times shows that only 89 companies have been issued the licences between April 2007 and April 2009.Since then, less than 100 cases have reached the EPFO board for clearance. A company-run PF trust needs to seek the central and the concerned state government’s approval after its application has been cleared by the EPFO board.

People close to the matter say as many as 233 applications are stuck due to the failure of regional PF officers to clarify minor doubts raised by the head office more than a year ago.These include applications made by multinationals like Ericsson, Adobe Systems and Bank Of America. Observers say at least 2,000 other applications are pending.Worried about being held responsible for eligible PF trusts losing their tax benefits , Central PF Commissioner Samirendra Chatterjee wrote to regional PF commissioners in November to clear all pending cases by the end of the month. Zonal heads were also asked to seek an explanation from concerned officers and take disciplinary action in case of delay.Yet, in the board meeting held last week, not a single case was presented for approval. This indicates that the backlog persists. With less than a fortnight to go before the taxman’s deadline, the picture is bleak for these PF trusts.

Service Tax has increased in india

Revenue collections from indirect taxes comprising, Customs, Central Excise and Service Tax, has increased by 42.3 per cent to Rs 2,07,756 crore during April-November this year as against Rs 1,45,958 crore posted in the same period last year, according to an official data released here.The indirect tax collections for the first eight months from April-November 2010 constitute an achievement of 66.3 per cent of the overall target of Rs 3,13,471 crore fixed for 2010-11.
Revenue collections from customs has increased to Rs 86,844 crore during April-November 2010, a 67 per cent higher than the previous year's collections of Rs 52,011 crore in the same period.This constitutes an achievement of 75.5 per cent of the target of Rs 1,15,000 crore for the whole year 2010-11.Revenue collections from central excise has increased by 34.4 per cent to Rs 81,984 crore during the period April-November 2010 as compared to Rs 61,020 crore collected during the same period last year.This constitutes an achievement of 62.8 per cent of the target of Rs 1,30,471 crore fixed for the current financial year 2010-11.As far as revenue collections from service tax for the period April-November 2010 is concerned, a collection of worth Rs 38,927 crore was made during this period which constitutes an increase of 18.2 per cent over the previous year's collections of Rs 32,927 crore during the same period.

The collections made in the first eight months of the current financial year constitute an achievement of 57.2 per cent of the overall target of Rs 68,000 crore fixed for the full financial year 2010-11, the data said.

Direct taxes have risen in the year of 2010

Direct taxes have risen nearly 18% to Rs 2.16 lakh crore in April- November 2010-11 from a year ago.As things stand now, we will definitely reach the target,” said S S N Moorthy, chairman, the Central Board of Direct Taxes, the apex direct taxes body. Advance tax payments by the top 100 companies in the country was up by 18%, much higher than the required 14% growth rate. The government has budgeted Rs 4.3 lakh crore from direct taxes in 2010-11 , more than half of its total tax revenue target of Rs 7.45 lakh crore.These higher than budgeted tax collections have become crucial to the government staying within its budgeted fiscal deficit target of 5.5% of GDP. The surplus Rs 65,000 crore raised from the auction of 3G and broadband spectrum has already been accounted for by the two supplementary demand of grants requiring additional Rs 75,000 crore spending. The government has also cut its borrowing target of Rs 4.57 lakh crore for the fiscal by Rs 10,000 crore. Indirect taxes have grown at a faster 42% over April-November from a year ago.

Didn't file tax returns for 7 yrs? Find out what to do

Sanjana Dasgupta, 28, hasn’t filed her tax returns in the last seven years. Call it laziness or sheer ignorance, either way she didn’t see the need to file returns till date.

Sanjana’s reasons:

1. For the first three years, my salary was not taxable. So, why would I be expected to file returns?

2. In the fourth year, my salary came under the tax slab. My employer has been deducting tax at source from my salary ever since. So, what’s the point in filing returns when I am already paying taxes?

"All right, then why do you want to file tax returns, now?” I asked.

”I have to travel abroad in couple of months. During my visa interview at the embassy they asked me to produce my tax returns for three or four years. I didn’t even know I was required to submit these documents for visa purpose,” said Sanjana.

”What do you plan to do, now?”

”I don’t know. I am lost,” said Sanjana

Here's help for Sanjana and many others like here:

You need to file your income tax return if your income is higher than the exemption limit. For the assessment year 2008-09, the basic exemption limit is:

• Men Rs 1.50 lakh
• Women Rs 1.80 lakh
• Senior Citizens Rs 2.25 lakh

If you earn more than the exemption limit, you have to file your returns. This holds true even if you are not eligible to pay tax.

What can Sanjana do now?

Patel says, “The best option would be to file the returns for the financial years ended March 2007 and March 2008 on an urgent basis. She can submit copies of the tax return along with a copy of the Form 16 for the year ended March 2006 for the VISA application. However, she cannot file the returns for any of the earlier years as they are time barred.”

Tax expert Sandeep Shanbhag confirms the same. He says, "As on date, she can file returns for a total of two years. If she files return after July 31, 2009 (the last date for financial year '08-'09 is July 31, 2009), it will be termed as a 'belated return' and the same can be submitted anytime up to March 31, 2011."

Reasons why you should file returns

”That’s not the only time you are required to produce copies of tax returns, you know?” I said.

”What?! There are more instances?” Sanjana asked.

Apart from the fact that it is legally binding on you and you might need it for your visa, returns come handy when you want to take a loan. Banks usually require you to submit income tax returns.

So, it is usually for your benefit that you file returns.

India units of foreign companies soon be benefit from eased regulations

Indian units of foreign companies could soon benefit from eased regulations surrounding the scrutiny and compliance issues of transfer pricing in their annual tax returns.

New “safe harbor rules” could soon be instated in India, allowing tax authorities to accept the transfer pricing returns of local units of foreign companies without scrutiny. The announcement was made on September 13th by S S N Moorthy, Chairman of the Indian Central Board of Direct Taxes (CBDT).

Currently local subsidiaries of foreign firms are required to clear their transfer pricing returns with the Income Tax Department before filing their annual tax obligations. Under the proposed changes, subsidiaries would be required to follow a set of pre-determined “norms” which will bypass assessment requirements and allow annual tax returns to be filed without scrutiny. The exact details of the new regulations have not yet been finalized, however S S N Moorthy commented on their progression, saying: “…safe harbor rules are at an advanced stage of consideration. I can’t share how the guidelines are going to be…[but] it will be a very favorable program… and it will be in place as early as possible.”

The new transfer pricing rules are being investigated by panel committee within the CBDT, which consists of both industry representatives and members of the Institute of Chartered Accountants of India. Local taxation experts are expecting that the panel will soon announce that the “safe harbor” rules will only be applicable to firms with INR 200 million (approx. USD 4.32 million) of overseas transactions annually. Additionally, applicable companies will be given three extra months within which to file their tax returns. According to S S N Moorthy, when the new rules are implemented they will accommodate the national General Anti Avoidance Rules (GAAR), albeit in a “very modest, responsible and tax friendly manner.”