India Incs improved performance in the second quarter of 2009-10 has given tax authorities some hope to improve their collections. The Central Board of Direct Taxes (CBDT) has directed its field formations to analyse the Q2 results of companies to calculate whether their advance tax liability has risen for the fiscal.

Based on the analysis, the field formations have been asked to send demand notices to companies before December 15, the deadline for the third instalment of advance tax payment. Most companies have posted better-than-expected second quarter results. So we felt some of them may have paid lesser tax in the first two instalments, which we are now checking up, a senior finance ministry official explained.

A year after the financial crisis, sectors like automobiles, cement, paints, gas distributions, auto ancillaries and engine sectors seem to be on a mend and companies in these sectors have posted over 50% growth in net profit. Other sectors like banking, software, consumer durables, cement and petro-chemicals too have registered a better performance.

In fact, as per a study carried out by FE, of the 3,169 quoted companies, only 17.2% or 544 recorded losses during July-September 2009. This is an 11.4% decrease from the number reported during the same period last year, when around 614 companies or 19.4% reported losses. Corporate advance tax collections in the September 15 instalment rose 14.7% to Rs 40,000 crore, after two consecutive instalments registering a negative growth.

The CBDT hopes that the better performance by companies in the July September quarter could yield more revenues and help it achieve the direct tax target of Rs 3,75,000 crore for the fiscal. As companies pay advance tax on their estimated earnings and profits for a fiscal, better earnings would translate into a higher tax outgo.

The CBDT is also empowered under section 210 (3) of the Income Tax Act, 1961 to reassess the advance tax liability of a company and issue a demand notice specifying the installment or installments in which such tax is to be paid.

This is, however, just one of the measures that the income tax department is undertaking to meet its direct tax collection target. The tax authorities are also training their guns on high net worth individuals and are pursuing cases where a demand of over Rs 10 crore is pending. We are looking at the Annual Information Returns as well as depending on market intelligence to check if any high net worth individuals are evading taxes, an income tax official told FE.

Meanwhile, after the significant overhaul in its tax deduction at source (TDS) regime last year, the CBDT is also banking on government deductors to deduct and deposit TDS on time.

As part of the revamp, the CBDT began training programmes to sensitise the authorised deductors in the states to comply with law and improve the TDS collections and also appointed more officers in its commissionerates to supervise deductions and collections under the system. Thanks to these efforts, TDS collections registered a 24.7% rise in 2008-09.

Faced with a Rs 3,75,000 crore Budget estimate for direct tax collections, which was later raised to an unprecedented Rs 4 lakh crore by finance minister Pranab Mukherjee, the CBDT is finding it difficult to meet the target. Direct tax during the first seven months of the current fiscal grew a mere 3.92% to Rs 1,73,447 crore.