TAXPAYERS BEWARE – TRANSPARENT TAX PORTAL HAS BEEN LAUNCHED
The Government of India along with the Income Tax Department in line with its stated policy of widening the tax net and curb tax evasion, have been very vocal about it particularly in recent years. Measures are being tightened now apparently also by compulsions of finding additional sources of revenue and manage the ballooning budget deficit amidst the pandemic crisis. Use of digital means like big data and data analytics today enables a range of information filtering across large databases and ushers in an era of tax transparency and encouraging citizens towards tax compliance.
Notwithstanding the circumstances it is clear that the Income Tax Department has stepped up efforts in its bid to curb concealment and tax evasion, due to which it keeps both educating and warning people to diligently file tax returns and pay taxes due, on time.
This article is prepared with compilations from credible sources including Income Tax Act, Income Tax Rules, Economic Times, Live Mint, Indian Express and MoneyControl website and is intended to spread awareness of recent changes in relevant tax laws and the latest tax rules, pay tax in time and avoid adverse consequences like interest, penalties and prosecution. Considering the hardship our country and the vast majority of economically backward public are going through in these pandemic times, one should take pride in paying taxes due and thus contributing responsibly to nation building.
I. HONORING THE HONEST TAXPAYERS:
Excerpts from the PM’s address to the nation yesterday [13th August 2020] while launching the Transparent Taxation Portal, are noteworthy:
§ “Our focus has been to banking the unbanked, securing the unsecured and funding the unfunded. And now, we are honouring the honest,”
§ “We have decreased complexity, litigation, taxes, increased transparency, tax compliance, and trust on the taxpayer,”
§ “Our effort is that our tax system should be seamless, painless, faceless. Seamless means that the tax administration should work to solve the problem instead of confusing every taxpayer,”
§ “The Income Tax department will now have to trust the taxpayers, who will also have the right to appeal in case of any suspicion from the department,”
§ Scrutiny of cases had come down to a fourth of 2012-13 levels, where 0.94% of all cases were scrutinised. This has come down to 0.26% in 2018-19, reflecting the change in policy under the present regime.
§ Stress is on reducing government intervention through faceless assessment, as this was an impediment in the way of facilitating ease of doing business, where India’s ranking has improved to 63 from 134 in the past few years.
§ The prime minister urged those who owe taxes to come forward and honestly pay their dues to contribute to nation building, saying only 15 million paying taxes in a population of 1.3 billion was too low. “The new platform, apart from being faceless, is also aimed at boosting the confidence of the taxpayer and making him or her fearless,”
Based on the above, some of the specific measures highlighted were:
a) Faceless assessment aims to eliminate the high level of physical interface between assessing officers and assessees, by use of automation to move away from the conventional system of scrutiny assessment. Taxpayers will no longer have to visit territorial jurisdiction tax officers attached to the case or the income tax department on receiving notices, as the allotment of officer to a specific case will be by computer random generation and would not be officers from the local jurisdictional office. Even the review process of the assessment will be done by some other officer elsewhere, to whom the assessee will have no direct access.
The CBDT Thursday amended the E-assessment Scheme, 2019 for implementing faceless assessments, under which in-charge of the National e-Assessment Centre can refer the case to jurisdictional assessing officer at any stage of assessment, with prior board approval. The in-charge can lay down circumstances where personal hearing will be allowed, which will be notified separately.
Certain exceptions to faceless assessments are cases relating to serious frauds, major tax evasion, sensitive and search matters, International taxes, Money laundering Act and Benami property Act.
b) Faceless appeals, will be handled on similar lines as faceless assessment. The government aims to bring greater transparency, efficiency and accountability in assessment or appellate procedure. It will use artificial intelligence and data analytics, with team-based assessment and review, while removing physical interface ensuring objectivity.
c) Vivaad Se Vishwas dispute resolution scheme was introduced some months back, has got good response from taxpayers for dispute resolution to ongoing tax disputes. Date for this scheme has been extended to 30 September 2020 having regard to Covid19 restrictions and inconveniences.
d) Taxpayers Charter: The PM mentioned that India had become one of the few countries in the world to introduce taxpayers’ charter, giving rights and responsibilities to taxpayers, adding that the income tax department will have to keep in mind taxpayer dignity, deal with them with sensitivity and not suspect them unreasonably. [Refer Annexure 1 for details of rights and obligations of Taxpayers]
II. ANNUAL INFORMATION REPORT [AIR]:
a) This Report was introduced recently by inserting a new Section 285BB, effective from 1st June 2020 and aims to prompt taxpayers to file their tax return and disclose all significant transactions voluntarily without making omissions or misstatements, deliberately or inadvertently. This statement is also expected to widen the tax base and discourage taxpayers from concealing information relating to their financial transactions already available with the tax authorities
b) The erstwhile Form 26AS that used to record transactions of income, tax deductions at source and tax payments [Under Section 203AA] has been replaced by Section 285BA by making AIR far more comprehensive and now discloses various significant financial transactions that has been captured from third party recipients to whom payments were made suppliers of goods and services and various other sources. AIR inputs filed by specified persons help the government collect information and cross-check it against the income declared and taxes paid in the ITR.
c) Under Section 285BA, “specified persons" are required to record and report high-value financial transactions of individuals which forms part of the annual information report (AIR). Such specified persons include banks, NBFCs, post offices, public utilities, airlines, sub registrar offices, ecommerce operators, listed companies where one holds or held shares or debentures etc. who are obliged under applicable provisions of tax laws to periodically report significant transactions to tax authorities and regulatory bodies. The AIR is also intended in due course to include non-compliance under some other statutes. Once fully functional, the AIR would become a critical report for credit rating by lenders and third parties, on similar lines as for example, the CIBIL report currently used by several banks and lending institutions.
III. OBLIGATION TO DECLARE SPECIFIC TRANSACTIONS IN TAX RETURNS
a) Under the existing scenario:
i. property purchase above Rs 30 lakhs,
ii. investment in shares, mutual funds, demat and credit cards above Rs 10 lakhs, and
iii. fixed deposit transactions above Rs 10 lakhs are to be reported.
b) The limit for cash deposits in banks has now been enhanced from Rs 10 lakhs to Rs 25 lakhs for savings account and Rs 50 lakhs for current account. However, bear in mind that if you have bank transactions exceeding Rs 30 lakhs then you are required to file an income tax return, irrespective of whether your transaction has been reported or not.
c) Refer Annexure 2 [Rule 114E of Income Tax Rules read with Section 285BA(3)] for details of Specified Financial Transactions [SFTs]. Which specified financial transactions are required to be reported.
As per Section 285BA(3), "specified financial transaction" means any—
(i) transaction of purchase, sale or exchange of goods or property or right or interest in a property; or
(ii) transaction for rendering any service; or
(iii) transaction under a works contract; or
(iv) transaction by way of an investment made or an expenditure incurred; or
(v) transaction for taking or accepting any loan or deposit,
which may be prescribed by the Board in this regard.
The Board is empowered to prescribe different values for different transactions in respect of different persons having regard to the nature of such transaction.
d) Individual/taxable entities who pays for or incurs amount of below transaction should bear in mind that the entity you have made the payment to [payee] , will be informing the government of your transactions would be reported, as per communication from the Ministry of Finance. These are:
i. Hotel bill/s exceeding Rs 20,000,
ii. Medical insurance premium of more than Rs 20,000,
iii. Property tax exceeding Rs.20,000,
iv. Life insurance premia expense of more than Rs 50,000,
v. School fees of more than Rs.1 lakh,
vi. Electricity bill of more than Rs.1 lakh, or
vii. Travel expense by Business-class airline, whether domestic or foreign, or
viii. Purchases white goods, jewellery, marble or paintings above specified financial limits,
e) Several taxpayers are complacent and feel that only a major tax default or a high-value transaction may trigger an income tax scrutiny, or if one falls within a randomly auto-generated sample. However, even small transactions if they are against the income tax rules could at times invite the wrath of taxmen as the tax authorities are digitally equipped to pinpoint these transactions for initiating necessary action electronically or otherwise.
f) There are already many transactions which may appear normal, but could have harsh consequences under the Indian tax laws. Taxpayers are well advised to avoid undertake such transactions or in the prohibited cash mode,”
g) Taxpayers beware Six common transaction/areas of compliance that can attract penalties and prosecution under Income Tax Act
i. Accepting or giving a loan or deposit in excess of Rs 20,000 in cash
Under Section 269SS and 269T, if a person takes, gives or repays a loan in cash in excess of Rs 20,000 in cash, as calculated in aggregate during a financial year, then penalty equal to the amount of loan received, given, repaid can be levied. Contravention of these provisions would attract penalty under Section 271D. One should also avoid repaying or receiving a sum of Rs 20,000 or more in cash for transfer of immovable property as per the income tax rules,
ii. Transactions for purchase of flat, jewellery etc in excess of Rs 2,00,000 in cash [even if cash was withdrawn from a bank account]
The recipient of cash above 2,00,000 would be liable to penalty equal to the amount received. The limit of Rs 2,00,000 is per transaction/ event, even in cases where payment is made on difference dates / by different persons.
An individual may sometimes allow their names to be used for any transaction by a third party possibly for accommodating for tax planning and even tax evasion. This can prove quite dangerous, because in case you allow use of your name for another party’s transaction, the I-T Department may tax the amount of transaction in your hand. Besides, wrong statement could also result in penalty and/or prosecution depending on how the taxman identifies and views it.
iii. Paying expenditure related to business/profession of more than Rs 10,000 in cash
No expenditure will be allowed as a deduction in computing profit and gains from business or profession if such expense is Rs 10,000 or more in cash.
iv. Donating more than Rs 2,000 in cash to a political party or registered trust
Any tax assessee won’t be able to claim deductions u/s 80G of the I-T Act for such donations if over Rs.2000 and paid in cash. Further, the political party or the registered trust could render itself liable to action for encouraging money laundering.
v. Not depositing TDS to the government account
In several types of transactions, a taxpayer is required to deduct tax at source (TDS). Different consequences follow in case Tax deductible at source, is not deducted and in case where tax is so but not paid to government. The latter type is far more serious and exposing the taxpayer to greater risk of prosecution, depending on the amount deducted but not paid to Government.
These consequences range from mandatory penalties upto tax defaulted, interest @ 1.5% per annum, disallowance of the corresponding expenditure [@ 30% for residents and 100% for non residents] and prosecution that the I.T department is not issuing notices in case of TDS amounts in excess of Rs.5 lakhs.
vi. Filing tax return without payment of due tax
Some of the consequence of non-payment of due taxes are as under:
1) Interest: Filing of tax return without payment of due taxes will result in levy of interest @1% p.m.
2) Penalty: Besides paying interest, penalty may be levied to the extent of the amount of default. This will apply even if taxes are paid before the issue of notice.
3) Prosecution: The I-T Department may issue a prosecution notice if taxes due as per the IT return are not paid.
IV. OTHER IMPORTANT COMPLIANCE MATTERS:
a) Pre-filled income tax return (ITR) forms
This is a process introduced by Income Tax department to make tax filing simpler and more accurate. This change is aimed at broadening the tax base and prompts the taxpayer to file returns and to comprehensively disclose his income and thus improves compliance. A start was made in auto-populating details of income and taxes for the first time in assessment year 2019-20 in case of the relatively simpler ITR-1 [Sahaj] and ITR-4 [Sugam] using sources of information available with the Income tax authorities and those received from various sources and the process is since, being improved.
b) DIN or unique number for income tax notices
All income tax notices, letters or any other official tax related correspondence will carry a unique number called 'Document Identification Number' or DIN. This number will be computer generated and will be verifiable on the I-T department's e-filing website. The tax department has already launched the facility to verify the DIN on its e-filing website. Confirm that any communication including notices received from the tax department on or after October 1, 2019 carries the DIN, or else it can be treated as invalid.
c) Financial transactions for which PAN number has to be quoted:
Rule 114B of Income Tax Rules, provides several categories of financial transactions which need PAN Number to be quoted mandatorily at time of entering into such transactions. For details, refer Annexure 3]
d) What to do if you receive a tax notice?
The Income Tax authorities have recently started electronically notifying significant transactions relating to a taxable person in the E-Compliance tab of a taxable person’s at the income tax filing portal. Such notices have to be responded by the recipient, based on whether it relates to the person or not. Do check your tax portal and if there is any. If these relate to the Assessment year 19-20, filing or revising of the relevant income tax return stands extended to 30th September 2020, and the opportunity can be used.
In case you receive an income tax notice, the first thing to do is to verify the facts. Quite often such notices are issued as requisite documents are not available with the tax department or there is some mismatch between the return submitted by you and the data available with the tax department.
e) Curb on online ticketing portals selling travel insurance
IRDAI in a circular has imposed curbs on selling of travel insurance as a pre-selected default option at the time of buying of tickets on online portals. The circular has stated that all group insurance arrangements that are not in compliance with the norms shall be terminated with effect from October 1, 2019.
f) External benchmarking of floating interest rates on retail loans
As directed by the RBI, all floating rate loans, i.e., personal, housing, auto etc. disbursed by banks have to be linked to an external benchmark, from October 1. The external benchmark can be RBI's repo rate, 3 or 6 month treasury bill yield or any other market interest rate benchmark published by the Financial Benchmarks India (FBIL). As per the RBI directive, banks have to reset these new interest rates at least once in three months. Therefore, any change in the external benchmark rate will impact your EMIs every three months or less.
g) Extension of time lines for income tax and TDS returns
Due to Covid19 dislocations and lockdown restrictions, the CBDT had granted a number of time limit extension in filing tax returns of Assessment Years 2019-20 and 2020-21 without attracting delay penalties. Current extended filing due date is 30th September 2020, for Assessment Year 2019-20 and 30 November 2020 for Assessment Year 2020-21. There have been similar concessions granted in filing of quarterly TDS returns relating to Financial year 2020-21, where extended dates of Q2 onward is extended to 31 March 2021, though there has been no change in the payment due dates of TDS collected. Refund claims of prior financial years have also been expeditiously settled.
CONCLUSION
Government policies has taken several initiatives to simplify Income Tax compliance and to widen the tax base through a scheme of self regulation. These tax reforms are a step in the right direction to ensure transparency and honour the rights of honest taxpayers and simultaneously raise awareness of the obligations of taxpayers.
The efforts at simplification of tax system is bound to yield positive outcome. However, while filing simple tax returns like ITR 1 [Sahaj] and ITR-4 [Sugam] may be possible for taxpayers on their own, considering the level of automation, knowledge of taxes required and penal consequences of non-compliance, professional assistance may be required in ensuring compliance with the law and filing tax returns in cases of income falling under heads of business or professional income or capital gains and of course depends also on the size and complexity of the business and its financial transactions.
The effectiveness of these tax reforms will have to stand scrutiny in implementation and demonstrate unbiased treatment for all citizens. Major instances of tax evasion involving the affluent indulging in fraud, concealment of assets, gross violations and some exiting the country has made new headlines in recent years.
Tax reforms can succeed only if these are followed in spirit too, rather than for mere compliance, as the dividing line between tax evasion and tax planning is quite narrow, as noted in several cases over past decades.
Author: GEORGE ABRAHAM KURIAN
Qualifications : B.Com, CA [1984], CPA[USA], CS [Inter]
Company: GEORGE A. KURIAN & CO, Chartered Accountants
Location: Thiruvananthapuram, Kerala
Views expressed by the author is intended to provide an overview of important tax provisions impacting a taxable person and to raise awareness of the taxpayer’s rights and obligations. As individual facts and circumstances may differ based on individual facts of the case, readers are advised to seek professional assistance as they deem fit and should not act solely based on information contained herein.
ANNEXURE 1
Taxpayers' Charter
The Taxpayers' Charter was announced in Budget 2020 aims to introduce it to build a trust between a tax payer and the tax administration and reduce harassment. PM Modi while launching the platform 'Transparent Taxation - Honoring the Honest' stated that the Taxpayers' charter is a big step in the development journey of the nation. It is a step towards bringing together rights and duties of the taxpayer and fixing the government's responsibilities towards the taxpayer.
The tax officers will now be committed to a 14-point charter, which includes collecting "only tax amount due" as per the law, while taxpayers would have to be "responsible" and fulfill 6-point expectations, including being honest and complaint.
A. Here are the commitments made by the charter:
1) To provide fair, courteous and reasonable treatment
The income tax department shall provide prompt, courteous and professional assistance in all dealings with the taxpayer.
2) Treat taxpayer as honest
The tax department shall treat every taxpayer as honest unless there is a reason to believe otherwise.
3) To provide mechanism for appeal and review
The I-T department shall provide fair and impartial appeal and review mechanism.
4) To provide complete and accurate information
The department shall provide accurate information for fulfilling compliance obligations under the law.
5) Provide timely decisions
The department shall take decision in every income-tax proceeding within the time prescribed under law.
6) To collect the correct amount of tax
The tax department shall collect only the amount due as per the law.
7) Respect privacy of taxpayer
The department will follow due process of law and be no more intrusive than necessary in any inquiry, examination, or enforcement action.
8) Maintain confidentiality
It shall not disclose any information provided by taxpayer to the department unless authorized by law.
9) To hold its authorities accountable
The department shall hold its authorities accountable for their actions.
10) To enable representative of choice
The department shall allow every taxpayer to choose an authorized representative of his choice.
11) To provide mechanism to lodge complaint
The department shall provide mechanism for lodging a complaint and prompt disposal thereof.
12) To provide a fair & just system
The department shall provide a fair and impartial system and resolve the tax issues in time-bound manner.
13) To publish service standards & report periodically
The department shall publish standards for service delivery in a periodic manner.
14) To reduce cost of compliance
The department shall duly take into account the cost of compliance when administering tax litigation.
B. Here's what the taxpayer charter expects from the tax payers
1) Be honest and compliance
Taxpayer is expected to honestly disclose full information and fulfil his compliance obligations
2) Be informed
Taxpayer is expected to be aware of his compliance obligations under tax law and seek help of department if needed.
3) Keep accurate records
Taxpayer is expected to keep accurate records required as per law.
4) Know what the representative does on his behalf
Taxpayer is expected to know what information and submissions are made by his authorized representative.
5) Respond in time
Taxpayer is expected to make submissions as per tax law in timely manner.
6) Pay in time
Taxpayer is expected to pay amount due as per law in a timely manner.
ANNEXURE 2
[Refer Para III (c)]
Under Rule 114E, reporting persons are required to report the following 13 types of financial transactions in the SFT to the authority. Out of these 13 nature of transactions, the last two are exclusively related to the demonetization period and hence irrelevant now.
Sl. No.
Nature and value of transaction
1.
(a) Payment made in cash for purchase of bank drafts or pay orders or banker's cheque of an amount aggregating to Rs. 10 Lakh or more in a financial year.
(b) Payments made in cash aggregating to Rs. 10 Lakh or more during the financial year for purchase of pre-paid instruments issued by Reserve Bank of India under section 18 of the Payment and Settlement Systems Act, 2007 (51 of 2007).
(c) Cash deposits or cash withdrawals (including through bearer's cheque) aggregating to Rs. 50 Lakh or more in a financial year, in or from one or more current account of a person.
2. Cash deposits aggregating to Rs. 10 Lakh or more in a financial year, in one or more accounts (other than a current account and time deposit) of a person.
3. One or more time deposits (other than a time deposit made through renewal of another time deposit) of a person aggregating to Rs. 10 Lakh or more in a financial year of a person.
4. Payments made by any person of an amount aggregating to—
(i) Rs. 1 Lakh or more in cash; or
(ii) Rs. 10 Lakh or more by any other mode, against bills raised in respect of one or more credit cards issued to that person, in a financial year.
5. Receipt from any person of an amount aggregating to Rs. 10 Lakh or more in a financial year for acquiring bonds or debentures issued by the company or institution (other than the amount received on account of renewal of the bond or debenture issued by that company).
6. Receipt from any person of an amount aggregating to Rs. 10 Lakh or more in a financial year for acquiring shares (including share application money) issued by the company.
7. Buy back of shares from any person (other than the shares bought in the open market) for an amount or value aggregating to Rs. 10 Lakh or more in a financial year.
8. Receipt from any person of an amount aggregating to Rs. 10 Lakh or more in a financial year for acquiring units of one or more schemes of a Mutual Fund (other than the amount received on account of transfer from one scheme to another scheme of that Mutual Fund).
9. Receipt from any person for sale of foreign currency including any credit of such currency to foreign exchange card or expense in such currency through a debit or credit card or through issue of travellers cheque or draft or any other instrument of an amount aggregating to Rs. 10 Lakh or more during a financial year.
10. Purchase or sale by any person of immovable property for an amount of Rs. 30 Lakh or more or valued by the stamp valuation authority referred to in section 50C of the Act at Rs. 30 Lakh or more.
11. Receipt of cash payment exceeding Rs. 2 Lakh for sale, by any person, of goods or services of any nature (other than those specified at Sl. Nos. 1 to 10 of this rule, if any.)
12. Cash deposits during the period 09th November, 2016 to 30th December, 2016 aggregating to—
(i) Rs. 12,50,000 or more, in one or more current account of a person; or
(ii) Rs. 2,50,000 or more, in one or more accounts (other than a current account) of a person.
13. Cash deposits during the period 1st of April, 2016 to 9th November, 2016 in respect of accounts that are reportable under Sl.No.12.
ANNEXURE 3
Excerpts from Rule 114B of Income Tax Rules
Type of transactions
[Including Applicability & financial limits]
1. Sale or purchase of a motor vehicle,[other than two wheeled vehicles].
All such transactions
2. Opening an account with banks [other than a time-deposit referred to at Sl. No.12 and a Basic Savings Bank Deposit Account]
All such transactions.
3. Making an application to any banking company or a co-operative bank , for issue of a credit or debit card.
All such transactions.
4. Opening of a demat account with a depository, participant, custodian of securities.
All such transactions.
5. Payment to a hotel or restaurant against a bill or bills at any one time.
Payment in cash of an amount exceeding Rs.50,000.
6. Payment in connection with travel to any foreign country or for purchase of any foreign currency at any one time.
Payment in cash of an amount exceeding Rs.50,000.
7. Payment to a Mutual Fund for purchase of its units.
Amount exceeding Rs. 50,000.
8. Payment to a company or an institution for acquiring debentures or bonds issued by it.
Amount exceeding Rs.50,000.
9. Payment to the Reserve Bank of India, constituted under section 3 of the Reserve Bank of India Act, 1934 (2 of 1934) for acquiring bonds issued by it.
Amount exceeding Rs.50,000
[10. Deposit with,
[i] banking company or a co-operative bank
[ii] Post Office.
Cash deposits exceeding Rs.50,000 on any one day.
11. Purchase of bank drafts or pay orders or banker's cheques
Payment in cash for an amount exceeding Rs.50,000 during any one day.
12. A time deposit with,—
(i) a banking company or a co-operative bank
(ii) a Post Office;
(iii) a Nidhi; or
(iv) a non-banking financial company authorized by RBI to hold or accept deposit from public.
Amount exceeding Rs.50,000 or aggregating > Rs.5 lakhs during a financial year.
13. Payment for one or more pre-paid payment instruments, to a banking company or a co-operative bank or to any other company or institution.
Payment in cash or by way of a bank draft or pay order or banker's cheque aggregating to more than Rs.50,000 in a financial year.
14. Payment as life insurance premium to an insurer
Amount aggregating to more than Rs.50,000 in a financial year.
15. A contract for sale or purchase of securities (other than shares)
Amount exceeding Rs.1 lakh per transaction.
16. Sale or purchase, by any person, of shares of a company not listed in a recognised stock exchange.
Amount exceeding Rs,1 lakh rupees per transaction.
17. Sale or purchase of any immovable property
Amount exceeding Rs.10 lakhs [or valued by competent authority above Rs.10 lakhs].
18. Sale or purchase, by any person, of goods or services of any nature [other than those specified at Sl. Nos. 1 to 17 of this Table, if any].
Amount exceeding Rs.2 lakh rupees per transaction.
Provided that:
i. Transactions entered into by a minor has to quote PAN of father, mother or guardian,
ii. If transactions are entered into by person not having PAN, he/she has to make a declaration in Form No.60 containing all required details to tax authorities.
iii. Transactions by joint holders exceeding threshold, will appear in the AIP/Form 26AS of all the joint holders individually. Each person may be required to explain why the shares of other holders, will not appear in his/her income tax return.
iv. Only transactions specified in 3, 5,6,9, 11 and 13 are applicable to non-residents.