The Comptroller & Auditor General of India (CAG) has highlighted the possibilities of misuse of income tax exemption provisions by the private healthcare industry.
In a performance audit conducted to assess the quality of the monitoring done on the tax compliance level of the private healthcare sector by the Central Board of Direct Taxes (CBDT), the CAG found that the Income Tax Act does not prescribe any measurable parameter to assess the extent of charitable activities being undertaken by hospital trusts availing of exemptions. It cautioned about the possibility of assessees availing tax exemptions under the Act without performing charitable functions.
The audit also noticed instances where exemptions were allowed to ineligible assessees engaged in trading/commercial activities, as well as instances of incorrect allowance of accelerated depreciation on items not classified under life-saving medical equipment, incorrect allowance of deduction under section 80IB of the IT Act on incomes from non-hospital activities and irregular allowance of deduction on provisioning rather than on actual capitalisation under section 35AD of the Act. It faulted the Income Tax department for not undertaking any impact analysis to assess the outcome of relief provided to assessees engaged in the private healthcare sector.
The audit noticed deficiencies in monitoring of donations and cross verification of donation receipts of donees vis-a-vis claims made by donors. As such, there is no provision in the ITD module to enable validation of section 80G certificates by Assessing Officers on similar lines as in done in the case of TDS certificates under TRACES.
The report also pointed out that assessing officers omitted to obtain details of cases where cash receipt and payments were made in contravention to sec 269SS and 269T and also failed to initiate penalty proceedings. The computation and allowance of capital gains/losses were not carried out according to the provisions of the Act.
The audit noticed that the systems -- Income Tax Payer Data Management System (ITDMS), Non-filers Monitoring System (NMS), Project Insight and other versatile tools for analysing data collected from external sources for widening of tax base -- have not been effectively utilised/ implemented for strengthening the tax base in private healthcare sector and for identifying the stop-filers and non-filers. "This also points to the possibility of potential assessees remaining outside the tax net", it warned.
The assessment, based on a study carried out during July 2016 to November 2016, included the tax assessment practices followed in the case of private hospitals, nursing homes, clinics, medical colleges, research institutes, diagnostic centers, pathological labs and other medical supplies agencies and stores.