Income Tax evasion rectified

The second most populous country with a large middle class workforce is a positive aspect for the economy of India. The large workforce means large output, and the large population means large consumption. This makes the market luring and the government determined to build world class infrastructure and an investment-oriented atmosphere along with transparent governance. The government taxes the individual’s income, thereby funding the governance processes. But tax evasion has long been a hurdle, and now the Income Tax Department has put many taxpayers on its radar.

Income Tax evasion rectified

The government of India has taken enormous measures to increase income tax collection. In line with that, many concessions are also given to the people, like changes in tax slabs with tax reduction and tax rebates on investments, among others. But still, tax evasion practises are prominent.
Apart from that, there are practises where the charitable trust and NGOs are used for tax evasion. To deal with that, the Income Tax Department has now taken firm action.

As per the report, around 8,000 taxpayers who have made sizable donations to charitable trusts have been issued notices by the income tax department due to suspicions of tax evasion. According to data analytics, these taxpayers were found to be making donations that did not match their income and expenses.

Also read: Banned anti-national NGOs have created their own underworld

Not only taxpayers but also tax professionals

The group of 8,000 individuals who received notices from the income tax department includes not only companies but also self-employed individuals and those who are salaried. Often, there are tax professionals who indulge in the manipulation of capital and income. Taxpayers are mostly reliant on these tax professionals. Addressing this, the department is also investigating tax professionals who were involved in facilitating these transactions.

As per a tax official, all of the cases involved donations that matched the exact amount required for either lowering the tax slab or receiving full exemption, and were paid in cash. Furthermore, even salaried individuals had paid exceptionally high amounts to the tax professionals and that too in cash.

Four financial years are assessed

Notices were issued by the income tax department over a period of three weeks, from mid-March to early April, for the assessment years 2017–18 to 2020–21. It is expected that additional notices will be sent out in the following weeks.

According to officials, the amounts of donations made to charitable trusts by mostly small businesses did not correspond with their income. In these instances, cash contributions were returned to the taxpayer along with a donation receipt after a commission deduction. This practise helped these taxpayers avoid paying taxes, as per the officials.

Also read: NGOs will no longer have a free hand at foreign funding: Supreme Court

Charitable Trust also under radar

The income tax department is currently monitoring charitable trusts that may be providing false bills to taxpayers. These trusts, if found guilty, may lose their tax exemption status, although no action has been taken against them yet.

Under Section 80G of the Income Tax Act, certain donations made to funds and charitable institutions are eligible for deductions from income, with 50-100% of the contribution being allowed as a deduction depending on the nature of the institution. However, these deductions are subject to limits that are linked to income.

The income tax department is using data analytics to track potential misuse of deductions under the old income tax regime, including Sections 80G, 80GGC, and 80GGB, which provide taxpayers with deductions for donations made to charitable trusts and political parties. In addition, the department is investigating donations made to inactive political parties and has already issued multiple notices.

Significant amount irrespective of firm transaction rules

Budget data reveals that companies forewent ₹1,430 crore in tax in FY22 through Section 80G contributions, while individuals and Hindu Undivided Families (HUFs) forewent ₹1,729 crore in FY22, an increase from ₹1,541 crore in the previous year.
Tax experts have stated that while tax evasion may have been possible in the past, the tax department’s synchronised data collection and strict compliance measures, such as disallowing donations above ₹2,000 in cash, will make it more difficult going forward.

Also read: Home Ministry bans nefarious NGOs with links to Naxals, missionaries and publications like The Wire

Move in alignment with GOI initiatives

Earlier, the Income Tax department had served many notices regarding tax evasion, but this one is entirely different. The department has analysed every aspect and every person involved. Not only the taxpayer organisation or individual but also the tax professional, who mostly sneak out of the IT department’s clutches.

The tax calculation and its subsequent equivalence to the amount evaded through donations is itself viable evidence and a rock solid base for such notices. The step taken by the IT department is completely in tandem with the initiatives that the government of India has taken since a few years ago. It will certainly deter taxpayers and tax professionals from indulging in such fraudulent practises.