Budget 2019: Some wise tax messaging
The Budget 2019 must pay heed to suggestions made by various committees in the past on tax laws.
-Use prosecution powers wisely: Bollywood producer Firoz Nadiadwala recently made headlines when Mumbai’s magistrate court sentenced him to three months’ rigorous imprisonment for delay in depositing tax deducted at source (TDS).
It appears that he had neither proved ‘reasonable cause’ for the delay to the I-T authorities, nor had he taken recourse to compounding — where, in lieu of prosecution, stiff compounding fees are paid. That said, compounding is not a ‘right’ given to taxpayers, and competent authorities can reject such a plea.
Recently, the Central Board of Direct Taxes (CBDT) tightened the norms for compounding. Offences relating to stashing of black money offshore or benami transactions cannot be compounded. But for delayed TDS deposits, there is a slight relaxation in terms of fees, which stand reduced to 2% a month (from 3%) of the TDS in default, if the errant taxpayer, suo motu, applies for compounding. However, the compounding option can be exercised only in three instances.
While Nadiadwala had paid the entire TDS with penal interest and penalty, although after 12 months, the court held that this delay didn’t absolve criminal liability. In several other cases, courts have ruled likewise.
Yet, in other instances, a more lenient view has been taken. For instance, the Delhi High Court, in the case of Sequoia Construction (1986), or the Rajasthan High Court in the case of SG Kale (2001), considered the financial difficulties of the taxpayers and had quashed prosecution proceedings.
Section 276B provides for prosecution for a period between three months and seven years, irrespective of the period of delay or the quantum of TDS not deposited in time. Standard operating guidelines set down by CBDT in February 2013 call for ‘mandatory’ processing of prosecution where TDS of Rs 1 lakh or more has not been deposited by the due date.
If the quantum is between Rs 25,000- Rs 1 lakh, it states that the matter may be processed for prosecution in case of repeated defaults, or if the deposit was not made prior to detection by I-T authorities.
Tax deducted at source is typically required to be deposited by the 7th of next month. In August 2013, CBDT deleted the requirement that prosecution should be launched only if the tax deducted has been retained for 12 months or more. Many questions arise.
Should not the period of delay and past behaviour of the taxpayer be considered? Compounding guidelines rightly distinguish between a first-time offender and a habitual offender. If a taxpayer has refunds due, which exceed the TDS amount not deposited in time, then should some laxity prevail? In its report of January 2016, Justice RV Easwar Committee, set up to look into the simplification of the I-T Act, had suggested, “No prosecution should be launched if the TDS with interest is paid voluntarily within 12 months from the date of deduction.”
Between April 1 and end-November 2017, I-T authorities had filed prosecution complaints for various offences (including delay in TDS deposits) in over 2,000 cases — a rise of 184% over the previous year. It is vital to draw the line between habitual tax evaders and other defaulters. In addition to the retention period suggested by the committee, ideally, CBDT should revise upwards the limit of Rs 1 lakh set down several years ago in its standard operating guidelines. Prosecution powers need to be wielded wisely, in all instances.
-Use data analysis, not a tax on bank withdrawals: Reports suggest that the Budget may introduce a tax on cash withdrawals from bank accounts exceeding Rs 10 lakh in a year. One of the aims is to crack down on black money. The Tax Administration Reforms Commission (Tarc), headed by Parthasarathi Shome, in its report of November 2016, admitted that Banking Cash Transaction Tax (BCTT), which after a four-year tenure was withdrawn from April 1, 2009, had boosted information available to I-T authorities.
BCTT was a minimal levy of 0.1% levied on cash withdrawals from non-savings bank accounts, which exceeded Rs 50,000 in a day in case of individuals and Hindu Undivided Families (HUFs), and Rs 1 lakh for others.
Revision of the annual information returns, to include cash withdrawals exceeding specified amounts made in a day from non-savings bank accounts, would also provide information to I-T authorities, and not inconvenience taxpayers with a fresh levy, according to Tarc. The commission also pointed out that tax-free agricultural income is aconduit to avoid tax and launder funds. Will this ever be plugged?