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Here's How Tax Evasion Will Be Curbed In Times To Come
Dec 11, 2017

As you might be aware, agriculture income is exempt in India. And needless to say, unscrupulous people use this provision to evade taxes. Many individuals, who own agricultural land in India, claim to be drawing crores of Rupees worth of income from farm output. This is confusing, especially given the common perception is that farmers in this country commit suicide due to financial distress.

You would be shocked to know this...

According to the Income-Tax (I-T) Department, 6.57 lakh assesses collectively declared the agricultural income of Rs 2,000 lakh crore in 2011- this was nearly 20 times India's GDP that year. Those masquerading taxable income or perhaps the income earned through illegal activities as agricultural income had a free-run so far. Even if you assumed all of them sow saffron, this number looks uncannily unrealistic.

In reality, all of them probably owned acres, but many of them may have not grown even a single crop in years.

It seems their days are numbered. Until now, the I-T Department was handicapped because of data unavailability and a lack of individual financial records. However, with the revenue department going in for a facelift, the situation is going to change soon.

In the near future, the I-T Department may simply access ISRO-powered satellite imagery and cross-check if any crop was grown in the mentioned areas indeed. Doing backward arithmetic and estimating the true income potential of such rich farmers would be a child's play for the I-T Department now.

Sounds like a movie script? Be assured, this is soon to become a reality.

Similarly, the instances of tax-evasion in the case of individuals having professional and business income are also common. To plug all the loopholes, the I-T Department is likely to integrate data obtained from the GST returns with that of the I-T returns. If it observes any discrepancies or inconsistencies in the financial information provided in GST returns and I-T returns, the assessee will have to face serious consequences.

Moreover, expect the I-T Department to spy on you based on information footprints you leave on social media. So, if are uploading the images of your new SUV and not declaring adequate income to justify such purchases; it is likely that the I-T Department knocks on your door.

The situation has changed dramatically post demonetisation-an event that revealed heaps of financial data of individuals to the I-T Department. It is using advanced analytics systems that can throw up crucial observations about assessees and potentially draw meaningful conclusions. Integration of Aadhaar with a whole host of services has offer more teeth to the Department. 'Project Insight'-an offensive against black money is likely to gain more ground in the foreseeable future.

On the regulatory front, other equally potent laws such as Benami Properties Act and Real Estate Regulation and Development Act (RERA) have immensely empowered the concerned Government authorities to take strong actions against tax dodgers.

Going by the recent developments, it seems the Government is going all out against black money holders by synchronising and coordinating the operations of all its departments.

The I-T Department may soon interrogate assessees carrying out suspicious transactions and holding disproportionate investments for framing proportionately serious charges against them.

Reacting to these developments Mr Amit Maheshwari, Partner at Ashok Maheshwary & Associates said, "Until now many taxpayers at the time of assessment would offer to pay tax on unexplained credits and investments if these were raised by the revenue department and (if) the taxpayers were not able to substantiate them. However, one has to be very careful now as such unexplained credits and investments may be examined under the Benami Act and may invite penal and criminal consequence."

Mr Dilip Lakhani, a senior tax expert said, "If a cash credit is unexplained and the tax department can trace back the money to some other person, then only Benami Act can apply."

He further added that, "In cases where there are only unexplained cash deposits in the bank account then higher tax is applicable and Benami Act can't be applied."

Bear this in mind if you are a taxpayer...

So far, escaping unnoticed from the taxman's microscope was comparatively easy, but going forward this exercise is going to become tougher. If you report big jumps in the cash holdings or in the turnover which aren't substantiated by the corresponding change in the debtors' and inventory position, chances of getting nabbed by the tax department will go up significantly.

As the businesses go increasingly digital and customers actively start using digital payment platforms, tracking your business activities and intersecting your personal financial activities will become easy for tax authorities.

Punishment for the concealment of the income and penalties imposed thereon are severe and may seriously damage your reputation.

While the government watchdogs are trying to encroach in the territories of tax evaders, the Government has to ensure that the genuine and loyal taxpayer is incentivized.

On this backdrop, the Budget 2018-19 holds the key. This being the last full-year Budget before the next Lok Sabha elections, expectations of tax payers is running high. From the grapevine, the Government is considering to reshuffle tax slabs remarkably thereby lowering the tax liability of the middle-class. It's still a wait and watch though. It's still a wait and watch though.

Efficient tax planning can result in you legitimately saving tax, not tax evasion. Hence, engage in prudent tax planning right since the beginning of the year. Also, keep a check on your spending and be careful while you show-off your possessions on social media platforms. Download PersonalFN's latest Comprehensive Guide to Tax Planning. This Guide will reveal how you can save your hard-earned money from the taxman, and reduce your tax burden quickly and smartly.

Happy Tax Planning!

This article first appeared on PersonalFN here.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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