Dr. Lalit Setia: How a Person Caught for Tax Evasion

How a Person Caught for Tax Evasion

-Dr. Lalit Kumar Setia

Modes of Tax Evasion:

Taxpayers most of the time, try to delay the payment of taxes or even be failed to pay the taxes. The Government takes it very strictly and there are provisions of penalties, late fees, interest on delayed payment etc. Secondly, there are instances where the smuggling is used to hide the transactions and such things are curbed with the help of taxation inspectors. Third, one of the major modes of tax evasion is the submission of false tax returns. In Government as well as Corporate organizations, the employees and suppliers to organizations, submit false tax returns hiding their income; known as concealment of income. Submission of false tax returns is taken very strictly and the person is required to pay 300% of the amount including a 200% penalty and even there are provisions for imprisonment if it is done intentionally by a person.

The fourth way is to show inaccurate financial statements, most organizations maintain two types of books, one in the fairway and the second is a rough way. Whenever any taxation inspector or audit team comes into the shop/office, the fair accounts are shown which are incomplete. Even it is tried to give bribes and hide the facts from Government.

The fifth way is the submission of false documents (affidavits, certificates, undertakings, etc.) particularly to claim exemptions, deductions, and other benefits available in the Income Tax Act. This is mostly done by the persons who know the provisions in a smarter way.

The sixth way is ‘Non Reporting of Income’, for example, hiding the income from specified sources such as the sale of assets, business transactions without taking money in a bank account, etc.

The seventh way is ‘to store the money and wealth outside the country so that the Government cannot look into the money and wealth retained by the persons.

How Government collects Tax?

The Income Tax Department directs Drawing and Disbursing Officers (DDOs) to deduct a certain percentage of tax from certain specific nature of payments and thereafter remit the same. In the United States of America (USA) is known as ‘Pay As You Earn’ means the citizens while receiving an income, get the tax deducted first. It is basically a great method to reduce tax evasion. Isn’t it?

Status of Income-tax return forms

In India, the extended last date of Income-tax return was 31st December 2021. As of 19th December 2021, the total income tax return forms received were 3.83 crores out of which, more than 50% that is 2.17 crores were submitted by salaried employees. The figures state that out of people contributing to the collection of income tax, the majority of taxpayers belonged to the 'Salaries category', and this majority matters in the economic development of India.

In Government organizations, DDOs are responsible to withdraw government money from the treasury and disburse the same as per the rules of the Finance Department. How do DDOs support tax administration? What is expected from the DDOs as far as Income Tax is concerned?

A. Obtaining Tax Deductor Account Number (TAN):

Before deducting tax at source (TDS), it is a must for the DDOs to obtain a Tax Deductor Account Number (TAN). It is required to mention the TAN number while depositing the TDS, submit the return of TDS, and issue the certificate of TDS to the deductee.

B. Receiving the correct PAN number from the Deductees and Mentioning it:

It is true that the DDO has to deduct TDS if payments are of certain specific nature as per the Income Tax Act. But it is also necessary that the amount deducted at the source is reflected in the correct PAN of deductees. In case, the PAN number is written wrong or the deductee submits it wrong; the tax credit cannot be provided.

C. Tax Deduction at Correct Rate as per Act and its Deposit

A DDO should be aware of the provisions of Income Tax, how much tax or at which rate, the tax be deducted from which nature of the payment. After deduction of tax, it cannot be retained in the pocket of DDO or in any other account of office/government. It is required to transfer the deducted amount to the designated banks either through book transfer or challan. In case, the TDS is collected by Government Department then it is transferred immediately with the book transfer entry at the time of making payment, and in case of others, it is required to deposit the TDS amount before the 7^th of the following month. There is one exception, that is the last month of the financial year i.e. March. In case, the TDS amount is collected by others (i.e. other than Government Department), it is required to deposit the amount before 30^th April.

For a deposit of TDS, the deductor is required to use Challan no. 281 and pay the amount either on the web portal of Income Tax or in designated banks that facilitate Income Tax Department in effective administration. It is also necessary to quote the correct section of the Income Tax Act with the correct rate of TDS in each deductee record.

D. TDS / TCS Return filing by Deductors:

All Government Departments, Companies, Persons whose accounts are required to be audited, and the persons with more than 50 deductees are required to compulsorily submit the TDS / TCS return in a specific format i.e. Form 24Q for Salaries Payments, Form 26Q for Non-Salaries Payments, and Form 27EQ for Tax Collection at Source, etc.

It is also necessary to file the correction statements whenever there is any discrepancy noticed in the earlier-filed TDS / TCS returns.

E. Issue of Certificates to the Deductees:

It is required to issue the certificate to the deductee with mentioning the details of the amount deducted. In the case of salaried deductees, Form 16 is issued up to 31^st May and in the case of non-salaried deductees, Form 16A is issued within 15 days from the due date of furnishing the TDS return.

This article is written by Dr. Lalit Kumar Setia; a renowned author and trainer. The article was published on 27th July, 2021 and last updated on 4^th September, 2021. The writer can be contacted on lalitkumarsetia@gmail.com