The direct tax arrears consist of mainly amount locked in litigation.
However, the growth in arrears has moderated when compared to previous fiscal. At the end of March 2011, the direct tax arrears stood at R3.3 lakh crore, an increase of over 30% over the level a year ago.
The arrears are 70% of the direct tax collection target for this fiscal and could prompt the finance minister to take a few more steps in the Budget to curtail it.
Deloitte tax partner Neeru Ahuja said that the government should find a solution to the problem by taking the industry also into confidence. It could give more powers to the Settlement Commission to handle such issues.
At the 150th anniversary of income tax department in 2010, the finance minister had slammed the department for not doing proper due diligence in filing appeals (against non-payment of tax claims).
One area of concern is litigation with taxpayers. The department is filing appeals in a routine manner without careful thought and examination leading to the department earning the dubious distinction of being the biggest litigant in the government of India, Mukherjee had said. He had added that some of the appeals filed by the department have been dismissed by the courts on account of inordinate delays.
Thereafter, the finance ministry took various measures, including raising threshold limit for filing appeals by the income tax department and setting up of
In March last year, the cap for filing appeals by the income tax department before the income tax appellate tribunal (ITAT), high courts and the Supreme Court was raised to R3 lakh, R10 lakh and R25 lakh from R2 lakh, R4 lakh and R10 lakh respectively. It means that income tax department was discouraged to go for appeals if the total revenue involved was below the threshold limit.
Besides, the finance ministry in last years Budget had made few changes in the rules of Income Tax Settlement Commission (ITSC), allowing search and survey cases where demand is R10 lakh to approach the commission against the earlier threshold limit of R50 lakh. The government had also set up a committee for suggesting ways to recover income tax arrears and to find out those who are involving in tax evasion.
On the other hand, the arrears of indirect taxes are comparatively less at over R40,000 crore. While the amount is R33,000 crore in case of central excise, it is R8,000 crore in customs.