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Tighter I-T scrutiny norms for professionals on cards
June, 30th 2006

Income-tax returns of professionals will come under compulsory scrutiny by tax authorities this fiscal if they earn Rs 10 lakh or more annually but declare an income of less than Rs 2 lakh.

The Central Board of Direct Taxes (CBDT) has tightened the scrutiny norms for professionals including film professionals, lawyers, doctors, chartered accountants and architects to track small assessees shortpaying or evading taxes. So is the case for salaried assesses, claiming refunds above a certain threshold, and contractors.

It is status quo, though, for stockbrokers the norms have neither been tightened nor eased. Overall, close to 5.4 lakh tax filers in the country will find their income-tax returns scrutinised this fiscal, with the CBDT setting an overall cap of 2% on the number of cases to be selected for scrutiny.

Professionals are non corporate assessees while stock-brokers and contractors can either be non-corporate assesses or corporate assesses. During 2006-07, assessing officers have been directed to scrutinise returns of all professionals whose gross receipts exceed Rs 10 lakh but income declared is less than 20% of the amount. The cutoff limit was higher at Rs 50 lakh in 2005-06. There are 25,000-30,000 professionals filing income-tax returns in Mumbai.

Scrutiny is the process of selecting some income-tax returns and examining them closely by calling for extra information and seeing if the details furnished are correct. I-T returns of stockbrokers (including sub-brokers) who receive brokerage income of Rs 1 crore or more but declare less than 10% of the amount will be taken up for scrutiny. All cases of brokers (including sub-brokers) with a claim of bad debts of Rs 10 lakh or more will also be under compulsory scrutiny. The limits were the same in 2005-06 as well.

If the broker (or the sub-broker) is a non-corporate assessee receiving a brokerage of Rs 50 lakh or more but declaring an income of less than 10% of the amount, his returns will be picked up by tax authorities. Similar is the case with stockbrokers (including sub-brokers) with a claim of bad debts of Rs 5 lakh or more.

Besides brokers, all banks and public sector undertakings, NSE 500 and BSE A group companies listed on the exchange as on March 31, 2006, non-banking companies and investment companies with a paid-up capital of Rs 10 crore or more are in the compulsory scrutiny basket. Cases will be selected through the computer-assisted scrutiny system (CASS) in 60 cities on the computer network, and manually in others.The selection criteria will be the same for both, according to a top government official.

With tax evasion reckoned to be rampant among contractors, the CBDT has decided to bring all cases where gross receipts exceed Rs 2 crore but net income declared is less than 5% of the amount under scrutiny (for corporate assesses). The limit was higher at Rs 5 crore in 2005-06. For non-corporate assessees, IT authorities will pick up all cases where gross receipts exceed Rs 1 crore, but net income declared is less than 5% of the amount.

Here again, the cut off limit was higher at Rs 2 crore in 2005-06. A larger number of I-T returns of contractors just as professionals will be scrutinised. This will be within the overall cap.

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