The government is considering a mechanism to analyse, profile and finally write off irrecoverable income tax arrears of tax defaulters as it looks to reduce administrative cost incurred on maintaing records of these bad debt and clean its books. Arrears for direct tax have touched Rs 2.5 lakh crore till last fiscal, of which Rs 1.43 lakh crore is not considered as recoverable by the income tax department. Still the department has to mainatain record of the arrears and compute interest and penalty on such defaults.
The total amount of direct tax arrears if recovered could overshoot the Budget target by almost 32% on the revised tax collection target of the government at Rs 7.82 lakh crore. ?Tax arrears of last several years have been brought forward by the IT department each year even though there is general realisation that most of this is impossible to collect for various reasons. The tax department is working to develop effective procedures for writing off these as un-collectable tax arrears,? a tax department official said.
Under the new mechanism, the tax department will analyse the nature of arrears and tax records of taxpayers before proceeding with writing offs. This will help it to do risk profiling of debtors which in turn will act as an advance warning system for the I-T sleuths preventing arrears getting converted into iirecoverable bad debts.
The department shall also develop an annual collection plan that would set targets and time standards for both current and arrear demand to be collected, the official added. The tax arrears are tax demand raised by the revenue department but not realised along with the amount of tax blocked in litigation and appeals at various levels. Further, the amount is bound to rise on account of the annual accretion of statutory interest, which the tax department is obliged to charge.
The arrears are difficult to recover on many counts like in some cases there are no assets for recovery? like the Rs 71,000 crore in the case of Hassan Ali? and in some cases the court has to give a direction like the Rs 35,000-crore arrears associated with Harshad Mehta scam.
Till the end of last fiscal, about Rs 41,000-crore direct tax arrears were locked up in litigations at various levels. The total tax collection target for the current financial year is Rs 7,46,651 crore which was revised upwards recently.