Important Topics: Transparent Tax Administration
The crusade against black money and corruption started with the setting-up of Special Investigation Team (SIT) on black money under the chairmanship of Justice MB Shah. The budget 2018 has taken forward the agenda of eradication of black economy and ushering in a transparent and accountable tax administration by another notch.
In ‘Ease of Doing Business’ index published by the World Bank, India jumped 30 places to breach the top 100 league. While positive change has been recorded across all 10 sub-indices, itis important to note the maximum change achieved in ‘Paying Taxes’ category, where India jumped from 172 to 119.
- The Economic Survey 2017-18 notes that there has been a 50 percent increase in unique indirect taxpayers under the GST compared with the pre-GST system and on the direct tax front there has been an addition (over and above trend growth) of about 1.8 million in individual income tax filers since November 2016.
- Today, effective taxpayer base has increased to 8.27 crores. The actions undertaken by the ITD has led to impressive increase in the average tax buoyancy in personal income tax. The buoyancy in personal income tax for financial years 2016-17 and 2017-18 (RE) is 1.95 and 2.11 respectively.
- Under Operation Cleans Money (OCM), launched by the Central Board of Direct Taxes after demonetization, high-risk persons were identified using advanced data analytics, including integration of data sources, relationship clustering and fund tracking for detailed investigations.
- A Finance Minister Communique highlighted the quantum jump in enforcement actions based on demonetisation data i.e. 158 per cent increase in number of searches, 106 per cent increase in seizures. Action under Benami Transaction (Prohibition) Amended Ac, 2016
- The Benami Transactions (Prohibitions) Amendment Act, 2016 provides for provisional attachment and subsequent confiscation of benami properties besides rigorous imprisonment up to 7 years.
Black Money in Foreign Bank Accounts
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, with stringent penal provisions including rigorous imprisonment of 3-10 years, has been enacted to effectively deal with black stashed away abroad. India has tax treaties with 148 countries inter alia for Exchange of Information on tax matters besides Mutual Legal Assistance Treaties in criminal matters with 39 countries.
Action against Shell Companies
- Prevention of misuse of non-individual legal entities especially companies has been a major concern of the Income Tax Department.
- The Prime Minister’s Office has constituted a Special Task Force, to oversee the drive against such companies with the help of various enforcement agencies.
- A slew of measures has been taken to crack down on domestic and foreign shell companies.
- These include, inter alia, anactement of the Black Money (Undisclosed Foreign Income and Assests) and Imposition of Tax, 2015, amendment of the Benami Transactions (Prohibition) Act, 1988, amendment of the Income-tax Act, 1961 to introduce the concept of ‘Place of Effective Management’ (POEM) and amending Companies Act to incorporate the definition of ‘beneficial ownership’.
- Further, to increase regulatory oversight, e-KYC of initial subscribers to a company is captured through “SPICe” (Simplified Proforma for Incorporating Company electronically).
- Aadhar seeding has been made compulsory for all the Directors of the Companies.
- Ministry of Corporate Affairs (MCA) have undertaken a massive drive against shell companies.
- In 2017 around 2.24 lakh companies have been struck-off.
- National Financial Reporting Authority (NFRA) is being set-up to examine financial statements of the companies, prescribe “Accounting Standard’s and take disciplinary action against errant professionals. An MoU has been signed between CBDT and MCA for regular and automatic data exchange. It will further ensure seamless Pan-CIN (Corporate Identity Number) and PAN-DIN (Director Identity Number) linkage for regulatory purposes.
Government has embarked upon a massive technology induction program to prevent revenue frauds and augment revenues through data mining and business analytics for a non-intrusive information-drive tax regime. The project INSIGHT of CBDT is one of the biggest data mining and business analytics projects in the country and is likely to go-live fully in 2018-19. The project aims to identify non-filers, prevent refund frauds, eliminate revenue loss due to false claims of deductions and promote voluntary compliance.
- This year’s proposals related to the direct taxes will have transformative effect on the Government’s agenda of clean economy. Budget proposals include, inter alia, rationalization of ‘Long-term Capital Grain’ (LTCG), checking the abuse of trust structure and mandatory filing of ITR by companies.
- Irrespective of the fact that whether any tax is payable or not by a company, it will have to mandatorily file the return or face prosecution. This provision will promote compliance by the companies.
Rationalization of LTCG
- The tax exemption from LTCG has been one of the most abused provision.
- The tax exemption from LTCG has created a regime which is inherently biased against manufacturing and has encouraged diversion of investment of financial assets. The total amount of exempted capitals gains from listed shares and units is around Rs. 3,67,000 crores as per returns filed for F.Y. 16-17.
- Shares were generally allotted through private placements. In order to curb this menace of non-genuine LTCG, through the budget 2017-18 the government restricted the exemption from LTCG to those cases only where Security Transaction Tax (STT) had been paid at the time of acquisition, subject to certain exemptions.
- Government has proposed to tax LTCG exceeding Rs. 1 lakh at the rate of 10 per cent without allowing the benefit of any indexation.
- ITDD has been the pioneer in the field of use of e-governance tools for delivery of services. Schemes like e-TDS, e-filling of Income Tax Returns, Refund Banker, e-Payment of Taxes, Centralized Processing Centre and e-Assessment have not only reduced the cost of compliance for the asses see but have also helped department in ushering in an assessee-friendly, transparent and fair tax administration.
- The government had introduced e-assessment in 2016 on a pilot basis and extended it to 102 cities in 2017.
- In this budget the Finance Minister has proposed to roll out the E-assessment across the country.
- Faceless taxpayer interface will not only increase taxpayers’ confidence in the tax administration but it would also eliminate their grievances against scrutiny process.
Curbing the Misuse of Trust Structure
The Comptroller and Auditor General (CAG) of India highlighted the alleged misuse of tax exemptions by trusts. Under the existing taxation regime, the income of trust and other charitable institutions is exempt if the income earned by these organisations are used towards their stated objective.
- Last year, the budget brought down the threshold on cash donation that can be received by charitable organisations to Rs. 2,000/-from Rs. 10,000/-. However, there is no restriction on trusts and similar entities with regard to cash expenditure. This provision is misused to siphon off money in of form the cash expenditure from trusts.
- In order to control the cash economy and check the misuse of funds by trusts, this year budget has proposed that payments exceeding Rs. 10,000/- in cash shall be disallowed and the same shall be subject to tax.
- Many of the NGOs do not have PAN. In order to bring these entities under the tax net, it has been proposed in the budget that every entity, not being an individual, which enters into any financial transaction of an amount aggregating to Rs. 2.50 Lakh or more in financial year, shall be required to applyfor a PAN.
- Six-members task force under the conenorship of a CBDT member and with Chief Economic Advisor as permanent invitee has been constituted to review the Income-Tax Act 1961, and to draft a new Direct Tax Law in consonance with economic needs of the country, the direct tax system prevalent in various countries, and the international base practices. The multi expertise committee is mandated to submit their report within 6 months.