In the wake of the Income Tax Department's warning to salaried taxpayers, you not only need to be tax-compliant, but also need to file your I-T returns carefully if you want to avoid the wrath of the taxmen.
Are you a salaried person, but one of those who usually conceal a part of their income from the Income Tax Department in a bid to save tax? Then you have more reason to worry. For, the I-T Department has just warned the salaried class against using illegal means while filing their income tax returns (ITRs). Such violators will not only be prosecuted, but their employers will also be now asked to take action against them, it has said.
According to a PTI report, the Central Processing Centre (CPC) of the I-T Dept in Bengaluru, which processes ITRs, has advised the salaried class not to fall prey to unscrupulous intermediaries, who help them in preparing false claims in a bid to get income tax benefits.
It may be noted that some taxpayers follow the practice of either under-reporting their income or inflating deductions or exemptions to evade tax. However, “such offences are punishable under the various provisions of the Income Tax Act,” CPC has said.
As per the CPC advisory, the I-T Dept is now using an extensive risk analysis system which can easily identify taxpayers who are non-compliant. And in cases of high risk, the I-T Dept may examine and verify the ITR details, after the processing of tax returns.
It is clear, thus, that now you not only need to be tax-compliant, but also need to file your I-T returns carefully if you want to avoid the wrath of the taxmen. “After the Income Tax Department’s cautionary advisory issued recently, all salaried taxpayers will have to pay additional attention and ensure that there are no under reporting of income or excessive / false claim of deductions from their salary income,” says Akhil Chandna, Director, Grant Thornton India LLP.
However, any mismatch in your income and ITR details may arise not only because of not being tax-compliant, but also because of your ignorance and failure to report any income. Here are, therefore, some of the common inaccuracies every taxpayer must take care of now:
1. Non-reporting of interest income from savings / fixed deposits account: These amounts can be directly mapped form the individual’s bank account statements and Form 26AS. “Non-reporting / under reporting of these amounts are apparent cases of tax evasion and calls for further investigation. Further, at times taxes are also deducted on interest income and hence, the mismatch of income by non-reporting are easily identified,” says Chandna.
2. Fake bills submitted for HRA claims: One of the common fraudulent practice by employees are to claim fake HRA bills without adequate supportings, like lease agreement, etc. Further there are no adequate outflows from their bank account to the extent of rent payments claimed. Such obvious frauds would now call for punishment under the provisions of the Income-Tax Act based on the recent advice.
3. Claiming false 80C deductions: It is very easy for employees to claim false 80C deductions like LIC bills, Mediclaim deductions etc. inflating the value of eligible fixed deposits without actual outflow of such investments. “As payments made to this under this investment schemes are directly mapped to employees 26AS which are available with the tax department, such manipulations are evident and subject to severe prosecutions as employees are time and again indulging in such frauds despite of endless reiterations,” says Chandna.
4. Not considering income derived from all employers: People changing the job should ensure that they consider the income derived from all the employers while filing their tax return. The Tax Department already have this information based on TDS return filed by the employer and missing to report any such income can trigger inquiry against them.
5. Claiming false deduction under chapter VI-A: There are a few tax professionals who try to lure the taxpayers by promising high refund and charge them 10-25% of their refund amount. These professionals indulge in inflating or making wrong claims under various sections of Chapter VI-A like, Tax Saving Investment u/s 80C, Education loan interest – u/s 80E, Deduction form Mediclaim policies – u/s 80D, Rajiv Gandhi Equity Saving Scheme – u/s 80CCG, Donations – u/s 80G, 80GGA, 80GGC or other deductions relating to disability or medical treatment of certain illness – u/s 80DD, 80DDB, 80U.
With linkage of Aadhaar and PAN to all your bank account, loan account, demat account, and insurance policies, the I-T Department may be able to digitally verify many of your claims with the data available with them. “In case of any discrepancy it can start investigation against the tax payer. Recently the Tax Department has notified Centralised Communication Scheme, 2018 as per which Centralised Communication Centre shall issue a notice to any person requiring him to furnish information or documents for the purpose of verification of information in his possession. Based on these inquiry conducted, the Centralised Communication Centre may forward the outcome of such inquiry to the Assessing Officer for further action and if the AO is convinced that you have made false claim, then you may have to face penalties and prosecution under the I-T Act,” says Chetan Chandak, Head of Tax Research, H&R Block India.
6. Making false claims under Section 10: Many salaried tax payers while filing their tax return indulge in making false claims under section 10, viz. HRA, LTA, medical reimbursement, etc. Since last year the Tax Department has started comparing the data in the tax return with the income as reported in Form 16, Form 16A, Form 26AS.
“The ITR Form released for AY 2018-19 also requires the employees to give a break-up of their salary. ITR-1 utility for AY 2018-19 has also been amended. It now requires the employees to report their taxable salary, allowances, perquisites, etc. separately and then they have to give the details break-up of all exempt allowances in the exempt income section. So, if the department finds any major discrepancy in the claims made in the return as compared to the details in the Form-16/Form 26AS, it can trigger a tax notice for such tax payers,” says Chandak.
7. Inflating claim of home loan interest: If you are among those who are inflating the claim of housing loan interest, be careful as the tax department may ask you to submit the proof online and if it is found insufficient, then the claim may get rejected and penal action can be taken against you.
8. Making false claims on capital gains: In the past a few taxpayers in a bid to save tax on their capital gains made false claims u/s 54, 54F, 54EC, etc. New the ITR Form requires to submit the details of the investment made under these sections. “Further with the linkage of Aadhaar and PAN with property transactions and the financial account, it would be easy for the tax department to verify your claims electronically and if those are found incorrect, it can result in a sever action against you,” informs Chandak.