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Notices on RBI, HSBC former staff for claiming tax refund
July, 05th 2006
The income tax department has issued penalty notices to former employees of the Reserve Bank of India (RBI) and the Hongkong and Shanghai Banking Corporation (HSBC) for wrongfully claiming refund of taxes paid on amounts received under early retirement schemes in 2003.

According to sources, the optional early retirement scheme (OERS) of RBI and early voluntary retirement scheme (EVRS) of HSBC do not qualify for tax exemption as is the case for normal voluntary retirement scheme (VRS) under Section 89 of the Income Tax Act.

It was clearly defined in the scheme document which was distributed to the employees before they decided to opt for it.

Even then these employees filed their income tax returns with refund claims ranging between Rs 1.66 lakh and Rs 2 lakh each.

The total refund claim worth around Rs 20 crore till date has also made the Central Board of Direct Taxes (CBDT) to issue notices to income tax department all over India to reopen such income tax returns for scrutiny for the past two years.

It has also suggested to the Institute of Chartered Accountants of India (ICAI) for measures to punish the chartered accountants who prompted the retired employees to file refund claims.

For HSBC employees, most of the claims were handled by unauthorised practitioners not registered with the income tax department.

In the case of OERS offered by the RBI, it was not a voluntary scheme and was designed as per the suggestion of the employees. The employer RBI had already deducted taxes before making payments.

HSBC has clearly cited in its policy document that the EVRS offers perquisites which are far in excess of the normal limit of VRS and hence does not attract tax exemption.

After being denied of the refund claims, the employees approached the income tax tribunal which also rejected the appeal and ordered a levy of penalty to each of these employees of the same amount as that of the claim. The penalty proceeding has been filed under section 270(1)(1) of the I-T Act.
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