In an event to commemorate 159th Income Tax Day, both the finance minister and the revenue secretary stressed on the use of data mining and risk profiling as tools to catch hold of tax evaders rather than using intrusive assessment techniques. It is, therefore, clear that tax department is actively using data from different sources to detect tax evasion and bring more people in the tax net.
But the question is how exactly the department is collating and using data? A look at the income tax department's action plan for 2019-20 gives an insight. The action plan lays down ways and means of achieving the department's various targets.
While income tax collection target for 2019-20 is Rs 13.8 lakh crore, which is a steep jump from actual collections of Rs 11.37 lakh crore previous year, the department is planning to take help of data and information received from various sources to achieve the target.
For long the tax department has been using data collected through tax deducted at source (TDS) as a potent tool to catch non-filers and make them file returns. While last year the tax department added 11 million new tax filers, in the current year the department's action plan has a target of adding 13 million new filers.
The action plan recognises the importance of TDS as a non-obtrusive but powerful instrument for preventing tax evasion, widening the tax base and augmenting revenues over the years. "The contribution of TDS to the overall gross direct taxes collections during FY 2018-19 was about 37.55 per cent. Effective and efficient TDS administration, therefore, remains a key area not only for achieving the above-mentioned objectives but also for providing better taxpayer service," says the action plan of the department.
The arrear demand - tax demands raised but not received - increased from Rs 11.20 lakh crore at the end of March 2018 to Rs 12.77 lakh crore. The department targets a 40 per cent reduction in the arrear demand by the end this financial year. For this it talks about detecting the causes of such high arrear demands through a centralised data management by using latest technology and advanced analytics.
The tax department has been using the Annual Information Return (AIR) of high value transactions like purchase of immovable properties worth more than Rs 30 lakh, etc. The action plan talks about obtaining the AIR data on sale of immovable properties over threshold limit and matching them with transactions on which TDS has been deducted to generate list of defaulters. It further says that in several cases the buyer of a property deducts TDS only at the rate of 1 per cent on purchase of immovable property from NRIs, which actually requires TDS at 20 per cent. "These are high-risk cases, which need to be taken up on priority basis. Action may be taken in such cases to augment revenues," says the action plan.
When it comes to payment made to non-residents, major part of the tax on such transactions is collected through TDS. It therefore says that the strategy to augment revenue through TDS requires a combination of proactive measures related to enforcement, capacity building (external and internal) and leveraging of available information. "Experience gained from the verification of remittance data carried out in the past years has highlighted the need to apply more focused and effective risk parameters in selecting high-risk data for verification," says the action plan.
Tax laws mandate tax audits of accounts of businesses and professionals with annual turnover/income of over Rs 1 crore and Rs 50 lakh, respectively. The audit report is a big source of information/data for the department. The action plan says that the audit report has information on non-deduction, short deduction, failure to deduct, failure to deposit, short deposit and delay in deposit. Moreover, the information of failure to deduct and lower deduction under wrong section is not available in TDS statements. Therefore, the data of from audit report is very useful.
Data collated through payment of equalisation levy - a levy on payment made by Indian advertisers to foreign websites - is also being looked at by the department for effective use. The action plan of the department says: "At present, information collected through equalization levy is only being made available to assessing officers of the payer/remitter, who is normally a resident. However, the levy actually relates to income of the non-resident recipient and needs to be correlated with the payments received by non-resident service providers." Therefore, it says, that access to this information should be given to officers of international taxation charges.
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