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Little to worry if your accounts are clean
November, 13th 2006

Does the thought of the taxman knocking at your door haunt you? Are you worried of having to visit the income tax office simply because your annual credit card expenditure has touched Rs 2 lakh or you have purchased your dream house valued at Rs 30 lakh or more? Gagan Pahwa and Vinay Mangla from Ernst & Young explain the measures taken by the Central Board of Direct Taxes (CBDT) to address such issues faced by taxpayers.

The government has taken several punitive measures to check tax evasion and augment revenue from high income earners. Apart from undertaking surveys and searches, information from third party sources in respect of high-value transactions are collected under the system of annual information return (AIR).

The AIR system has been introduced to track high-value transactions of taxpayers to detect any tax evasion. Under the AIR system, it is mandatory for certain companies, banks, mutual funds, registrar/ sub-registrar of state governments, RBI officials to furnish information about specified high value transactions entered into on or after April 1, 04 to the income tax department.

Specified high-value transactions pertain to purchase or sale of immovable property valued at Rs 30 lakh or more; annual credit card expenditure of Rs 2 lakh or more; investment in shares of a company of Rs 1 lakh or more in public issue; mutual fund investment of Rs 2 lakh or more; purchase of bonds or debentures for Rs 5 lakh or more, annual cash deposits of Rs 10 lakh or more in savings account and purchase of RBI bonds of Rs 5 lakh or more.

Though the AIR system has been a vital source of information for the income tax department for detecting tax evasion, it has at times been criticised for harassment of taxpayers.

Scrutiny notices requiring personal attendance of taxpayers and roving inquiries by the income tax officers that were many a times not relevant for the case have led to a feeling of reluctance and fear among the taxpayers in visiting the income tax office and facing tax officials. Further, long waiting hours at the tax office add to the anxiety of the taxpayers.

In view of these hassles faced by the taxpayers, the CBDT has laid down certain guidelines which primarily aim at redressing the grievances of taxpayers. Now, the taxpayers need not appear in person before the income tax authorities in response to scrutiny notices issued based on information contained in AIR.

A written reply along with supporting evidence will be sufficient compliance to the notice. The CBDT has further clarified that if the information and supporting evidence received in response to the scrutiny notice is sufficient, personal attendance of the taxpayer shall not be insisted upon. Queries made shall be specific and to the point, leaving no room for unnecessary questioning.

Further, in order to bring transparency into the system, all cases selected for scrutiny during a month will be displayed by the 15th of the following month. Moreover, taxpayers can make use of the drop box system to file their grievances in writing.

So, you can let go of the fear of visiting the income tax office but do ensure that you have disclosed all your income while filing tax return and paid appropriate taxes!

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