Amounts involved in personal income tax (PIT) disputes could jump by a massive Rs 2.5-3 lakh crore in the current financial year from close to Rs 4 lakh crore at the end of FY19 for the sole reason of post-demonetsation cash deposits in banks by about 90,000 individuals that have to date remained unexplained by them to the taxman’s satisfaction. That could present a chance for the government to net a tidy sum in FY20 if sections of these recalcitrant individuals opt to use the new Vivad Se Vishwas scheme to avoid much higher tax liabilities that could potentially befall on them in the normal course of dispute resolution involving tax adjudicators and courts.
According to a senior official, having exhausted the procedures involved before dispute stage like sending e-mails and SMS messages to these individuals to elicit their responses and explanations within specified periods, the cases of the above 90,000 people have started getting classified as ‘disputes’ and by the end of February, most of them will be termed so. This will make these individuals eligible to use the Vivad Se Vishwas scheme by paying 75% of the cash deposited by March 31, 2020 to nullify chances of any further liabilities that could otherwise arise from holding the unaccounted cash.
According to Section 115 BBE of the Income Tax Act inserted via Finance Act 2016, unexplained cash credit will be counted as income of the person concerned during the year it is received and such income will be taxed at a flat rate of 60% plus 25% surcharge on the tax amount. So under the new direct tax dispute resolution scheme announced in the Budget – the relevant bill was tabled in the Lok Sabha on Wednesday – these people could pay just the aggregate amount of the disputed tax (which is 75% of the note-ban cash deposit) and escape any further onuses like interest on the disputed amount and penalty. The penalty waiver under Vivad Se Vishwas itself implies relief amounting to 6% of the unexplained cash for the individuals. They would have to weigh the litigation option against this new window, also after taking into consideration the possibility of a much higher interest burden a lengthy and unsuccessful litigation could bring.
PIT dispute amounts which used to rise steadily bucked trend in FY18, the year after demonetisation, with a year-on-year fall of nearly Rs 80,000 crore or over 25% to Rs 2.24 lakh crore. The decline is attributable to the two income disclosure schemes — IDS and PM-GKY– that ran for a few months in FY17 before and after note-ban, respectively. These schemes eliminated disputes worth about Rs 75,000 crore and enabled the government to fetch over Rs 25,000 crore.
Large-scale searches and seizures carried out for nearly a year after the demonetisation period (November-December 2016) apparently resulted in a big 77% jump on year in PIT dispute amount to Rs 3.97 lakh crore at FY19-end.
After demonetisation, the government launched operation clean money (OCM) project targeting 23.5 lakh people who made cash deposits disproportionate with their income profiles. Thereafter, the taxman issued statutory notices to 3 lakh among these people and a total of 2.1 lakh prople filed tax returns revealing self-assessment tax of Rs 6,560 crore. However, as an RTI filed by FE revealed, some 90,000 among these people haven’t filed returns despite receiving statutory (Section 142-1) notices.
In a written reply tabled in Lok Sabha on Tuesday, minister of state for finance Anurag Singh Thakur stated: “Post-demonetisation, during November 2016 to March 2017, searches were conducted in 900 groups leading to seizure of Rs 900 crore, including cash of Rs 636 crore and admission of undisclosed income of Rs 7,961 crore. During the same period, 8,239 surveys were conducted leading to detection of undisclosed income of Rs 6,745 crore. Notices were issued and SMS and emails were sent to persons who had deposited substantial amount of cash but had not filed their return of income till the due date of filing. As a result, returns were filed by 2.09 lakh such identified non-filers and they paid self-assessment tax of Rs 6,531 crore.
The I-T department had earlier said that of the original 23.5 PAN holders scrutinised under OCM, over 17 lakh filed e-returns after receiving communication. Out of these, over 14.5 lakh PAN holders filed their income-tax returns for last 3 assessment years – AY2015-16,2016-17 & 2017-18. As on January 7, 2019, out of the 23.5 lakh persons, a total 4.15 PAN holders had never filed income-tax returns.
