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More classes may be asked to file income tax returns to check evasion
July, 09th 2019

Armed with transaction details using big data analytics, the government may notify some other classes of people who would be required to file income tax returns in a move to contain evasion.

"People evading tax have to be dealt differently. The 2 per cent TDS (in case of withdrawal of more than ?1 crore cash from bank account in a year) is actually for those who are getting away.

"You must have seen in the budget that there are several measures such as those whose electricity bill is more than ?1 lakh would need to file return. We may notify some other class of people who would be required to file tax returns," Revenue Secretary Ajay Bhushan Pandey said.

The Union Budget for 2019-20 has proposed to make return filing compulsory for persons who deposit more than ?1 crore in a current account in a year, spend more than ?2 lakh on foreign travel or have an annual electricity bill of more than ?1 lakh.

Tax experts said that the proposed move was positive and it will help widen the taxpayer base, besides curbing evasion. Going forward, the expert said that high hotel bills, massive expenditure on holding a party or purchasing a car could require people to file tax returns.

"The government has already said that those doing high-value transaction would be covered. The next could be high hotel bills, clubs, expenditure on holding a party, purchase of cars and investment above a certain level," said Riaz Thingna, Director, Grant Thornton.

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"If someone is buying a car for ?5 lakh, it is unlikely that his income would be less than ?5 lakh. Today, people are buying ?75 lakh car and still not paying taxes. So, I think there are enough opportunities to take up so many different areas."

Though tax compliance has improved in the last few years with a huge rise in number of returns filed, there is enough scope for improvement in a country having a population of about 130 crore.

As per official data, 6.86 crore income tax returns (ITRs) were filed in 2017-18 registering a growth of 23 per cent over the previous year.

The Modi government has been consistently clamping down on generation of black money. It has come out with a number of steps to make India a less-cash economy. Many loopholes of tax evasion and avoidance have been plugged in the last few years while demonetisation has been billed as one of the major steps in this direction.

The government has adopted the principle of higher the earning higher the tax. The budget this week raised surcharge on super rich. Accordingly, those with annual income between ?2 to ?5 crore would be levied a surcharge of 25 per cent from 15 per cent previously.

For those earning ?5 crore or more annually, the surcharge has been increased from 15 per cent to 37 per cent. With this, the effective tax rate will go up to 39 per cent for those in the ?2-5 crore income slab. The effective rate for those in ?5 crore and above group would go up to 42.74 per cent.

While industry has been miffed over the move, the Revenue Secretary defended it strongly saying the increased tax rate was still lower than those applicable in many countries. He cited the case of US, France and China to drive home the point that India still taxed its super rich at lower rates.

"In India, before the (proposed) increase, for the highest tax bracket the tax rate was 35.8 per cent. In Brazil it is 27.5 per cent. In Canada, it is 33 per cent plus 21 per cent state taxes. It is more than 45 per cent in China, 66 per cent in France and 50 per cent in the US," Pandey said.

On the apprehension that the hike in customs duty on gold would lead to smuggling, the Revenue Secretary said that the enforcement agencies would deal with that problem.

He also said that economic decisions are based on the overall economic environment and not on the basis of whether somebody would misuse the provisions.

"If that argument is considered, even 10 per cent tax would not be there. These arguments are being given by certain people, but the question is how far the argument is valid," he said.


Pandey noted that the stated policy of the government was to reduce non-essential imports.

"We should not be using our forex for non-essential imports. So, the proposal goes along with this policy. The issues related to smuggling or anything will be dealt by the enforcement agencies," the revenue secretary said.

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