New Delhi: Analysts and the opposition have raised concerns over the income tax department’s proposed move to expand data collection — by including purchases of jewellery, white goods (ACs, washing machines etc) and paintings, and hotel spends, among other things — saying it flies in the face of the Modi government’s promise of a simple tax regime.
They have said the proposed framework will add to the compliance burden of firms, with the opposition going a step further and saying this opens the door for “tax terrorism”.
The I-T department is looking to include more things under its transaction-reporting framework — this means financial institutions and other firms will have to report more transactions above prescribed thresholds to the tax department.
Aimed at widening the tax base, the proposal seeks to make several additions to the framework — purchases of jewellery, white goods, marble and paintings, annual education fees and donations worth over Rs 1 lakh, and domestic business class and foreign travel.
Other items proposed for inclusion are hotel bills of Rs 20,000, life insurance premiums of over Rs 50,000, health insurance premium and property tax payment of more than Rs 20,000, and electricity consumption of above Rs 1 lakh/year.
All these transactions will be in addition to existing reporting requirements for banks and other financial transactions relating to high-value cash deposits in current and savings accounts, besides purchase of bonds and debentures and payment of credit card bills. Clarity is however awaited on whether it will apply to cash transactions alone or for digital payments as well.
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‘Will lead to harassment of honest taxpayers’
Congress leader and former MP Rajeev Gowda said the limits for reporting under various heads is so low, it will lead to a “tremendous” compliance burden.
“On the one hand, the Modi government claims to improve ease of doing business, ease taxpayers’ burdens, and minimise government while maximising governance. On the other hand, its actions are the exact opposite,” he said. “This opens the door for further tax terrorism and harassment of the honest.”
Gowda said the government’s focus should be on getting the economy back on track by focusing on actual solutions “rather than optics and illusory relief packages”.
“This is not the time for compliance-heavy, tax-yield-light moves such as this. A thriving economy will automatically add to the tax base. But that will remain a distant dream under this regime,” he said.
The timing of the move, Gowda added, clearly indicates that the fiscal situation is extraordinarily serious. “Desperation is pushing the Modi government to go after a section of Indians who have been substantially bearing the brunt of the government’s mismanagement of the Covid crisis.”
A senior finance ministry official, however, justified the proposal, saying it is aimed at broadening the tax net.
In a country of 130 crore people, only 1.5 crore people pay taxes, PM Modi had said Thursday. In addition, only around 6.5 crore filed their tax returns in 2019-20.
With the new proposal, the tax department hopes to catch tax evaders whose expenditures and investments do not match their declared sources of income.
“Financial intelligence is being used to monitor expenditures incurred by people as we want people to pay the taxes they owe. In a faceless income tax system, no honest taxpayer will be harassed. There needs to be some sort of tracing to act as a deterrent,” said the official.
The official was referring to the faceless assessment system launched by the government Thursday, which does away with the need for any physical interface between taxman and taxpayer. The government has also introduced a taxpayer’s charter, assuring taxpayers of their rights to fair and respectful treatment. Faceless appeals will also be a reality from September, the government had announced.
Analysts said the government’s desire to expand the tax base is understandable, but added that the thresholds should have been higher.
“In a country where the tax-to-GDP ratio is low, it is understandable that the government wants to expand the tax base. The tax department is using information available from all sources to minimise tax leakages and to ensure that the expenditure made by an individual is in line with known sources of income,” said Sudhir Kapadia, national tax leader at EY India.
“With the tax department moving towards pre-populated tax returns, some information like insurance premiums may be collected to compute savings under 80 (C),” he added. “Having said that, the thresholds are low and should be more in my view. Compliance burden on businesses should be taken into account.”
Amit Maheshwari, managing partner at Ashok Maheshwary and Associates LLP, a CA firm, said the proposed expansion would result in better monitoring of transactions and consequently expansion of tax base.
“As the tax department gets more and more micro data of this sort, it would result in better profiling of existing and potential taxpayers through the use of technology like artificial intelligence and machine learning to mine this large quantum of data,” he added, even as he echoed concerns about the compliance burden. “The compliance would increase in the hands of the entities handling such data considering the fact that some of these thresholds are low.”
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