Long road for income tax department in 2018

Sources say the govt has directed the I-T department to increase collections by an additional Rs 20,000 crore to make good the GST shortfall

The year 2018 will be challenging for the income tax (I-T) department as it grapples to establish cases of untaxed cash deposits made during demonetisation, estimated at about Rs 3 lakh crore.

The Lok Sabha elections of 2019 are expected to put more pressure on the taxman because eradicating black money is likely to be a key poll plank of the Bharatiya Janata Party (BJP). The onus of the clean-up exercise seems to have been put on the I-T department, also because the government is reeling from the pressure of the spiralling fiscal deficit, which crossed the year’s Budget estimate in the April-November period. Revenues, especially indirect tax collection, have been below expectations after the introduction of the goods and services tax (GST).

Sources say the government has directed the I-T department to increase collections by an additional Rs 20,000 crore to make good the GST shortfall.

On enforcement, there is talk in government circles that the Rs 2,000 note may be pulled out to step up war against black money. The Reserve Bank of India has reportedly stopped printing it.

Further, the tax department will start launching prosecution against tax evaders without requiring the assessment to get over. A lot of action will be seen in benami transactions and foreign undisclosed income cases under the newly enforced Benami Transactions Act and Black Money (Undisclosed Foreign Income and Assets) Act. 

On policy, the Central Board of Direct Taxes is likely to finalise a draft notification in which it had proposed to companies that taxpayers who had got their accounts audited would be required to submit their income estimates and tax liabilities for six months of the financial year to the I-T department by November 15. Further, the government is said to be mulling integrating direct and indirect taxes to expand the data base. Linking the Aadhaar number with bank accounts and other transactions is subject to the Supreme Court’s verdict in March.

The tax department’s clean-up exercise is likely to continue in 2018. This includes the third phase of Operation Clean Money, Project Insights, and so on. Human intervention in tax proceedings might reduce because the government wants the department to meet assessees in person. These apart, the concept of jurisdiction-free assessment will be implemented, the trial for which has kicked off successfully. Overall, the upcoming rules on taxation will be more stringent than what they were in 2017. However, there could be roadblocks as well. 

The irony of 2017 was that after a year of the note ban, tax officials were unclear about how this Rs 3 lakh crore had been arrived at. Soon after the announcement of the estimate, the tax authorities were directed to establish it was a correct estimate so that the government could showcase the success of demonetisation.

But the data on demonetisation does not suggest so. The latest on this, which was released in May, said the department had added 9.1 million taxpayers after demonetisation and detected undisclosed income of Rs 23,144 crore.

Ninety-nine per cent of the Rs 15.44 lakh crore demonetised has come back to the banking system. This has rendered untenable the contention that demonetisation would help to eradicate black money. On the other hand, the government’s voluntary schemes have also not given the expected results, such as the Pradhan Mantri Garib Kalyan Yojna (PMJKY), the second voluntary scheme in the three years of the Modi government. Taxmen failed to encourage people to take advantage of the scheme. The government reportedly managed to garner only Rs 2,300 crore against the tax department’s informal target of Rs 1 lakh crore.

As soon as the PMJKY scheme ended in March 30, 2017, the CBDT launched Operation Clean Money (OCM). So far, the OCM has identified more than 550,000 people whose deposits have not matched their tax profiled and also showed multiple accounts. Another 60,000 people are on the radar for not disclosing all their bank accounts. Investigation into these is going on.

In addition to these, investigation into foreign disclosure cases like the British Virgin Island, Panama Paper leaks, Paradise and suchlike is to see a breakthrough. 

“At present, the focus is on assessing the 2015-16 cases, the deadline for which will be over in December 2018. The cases that came up during demonetisation is for FY17, and they will take time to finalise,” said an I-T assessment officer. According to him, doing it simultaneously will require more people. 

The CBDT has 46,000 people compared to the sanctioned strength of 75,000. A majority of vacant positions are at middle and lower levels, i.e. people responsible for handling all small and big cases and collecting revenues of over 80 per cent.  

Experts in this field say the extra workload may lead to the I-T department losing its focus. “It was an action-packed year. The government knows how to time the announcement of stringent action against tax evaders,” said a former bureaucrat. According to him, too many schemes and new regimes may yield small gains but that will not suffice in winning the big battle.