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I-T dept closes in on TDS defaulters
January, 21st 2009

The Mumbai income tax department has surveyed 50-60 companies, including multinational firms, in the past two weeks as part of its drive
to identify and bring to book tax deducted at source (TDS) defaulters. The department is mainly focusing on companies that have collected TDS, but not deposited the same with the department.

In the case of MNCs, the department is investigating companies that have not deducted TDS before making payments to Indian entities with whom they have carried out transactions.

PC Chhotray, chief commissioner, income tax, Mumbai, told ET: "Yes, we have been conducting the surveys. I am waiting for the reports from my officers regarding the results of these surveys."

However, it is learnt from reliable sources that most of the MNCs surveyed by the department were contesting the demand for TDS. In many cases, whereas the income tax department thinks that an overseas company is liable to deduct TDS before making payment to an Indian company in a cross-border transaction, the MNCs have taken the line that the transaction does not attract tax in India.

These are similar to the Vodafone case in which the global telecom major has dragged the department to the Bombay High Court, challenging its jurisdiction to demand tax from the company. Such issues generally end up in court, a senior income tax official in Mumbai said.

Tax deducted by employers from salaries of employees constitutes a significant portion of the TDS collected. Here also, there are cases where companies have been found to have defaulted in paying to the tax department despite deducting the tax from employees.

Income tax survey is a milder version of an income tax raid. Under the latter, the officers have the power to seize documents, assets, bank lockers and freeze bank deposits while under a survey, the powers are limited to collecting information and examining the documents.

But survey is an effective tool as it results in disclosure of actual income of the taxpayer. Survey is also an effective deterrent for tax evaders.

TDS collection in April-December 2008 period recorded a 34% increase to Rs 29,000 crore from the same period in the previous fiscal year.

According to sources, the income tax department is on a drive to increase the tax collection from Mumbai, which accounts for 35-40% of the national direct tax collection. The advance tax collection from Mumbai in the current fiscal to December 2008 was way below expectations.

However, even as corporate tax collection fell below the previous years collection, it was the growth in TDS that brought the total collection 6% above the corresponding period last year.

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