Income Tax Department's warning to the salaried against bogus refund claims smacks of inept assessment

The Income-Tax Department’s (IT-D) warning to the salaried, to desist from making bogus refund claims is baffling to say the least. Someone in authority must crack the whip at the first hint of wrongdoing. Pleading and issuing warnings smack of ineptness, bordering on helplessness. In this case, an ineptness in making a proper assessment of refund claims filed through income tax returns (ITRs).

The department's warning follows a racket in Bengaluru, where a tax advisor was seen helping information-technology (IT) sector employees file bogus refund claims. One wonders how.

Representational image. Reuters.

Representational image. Reuters.

The income-tax (IT) law has put the fear of God into employers. The law makes them, for all practically purposes, the assessing officer insofar as salary assessment is concerned.

Then there is the possibility of employers being arrested for any laxity in this regard, including failing to fully deduct tax at source and depositing the same with the treasury.

So much so employers’ behaviour has been exemplary on this score though some of them especially those employing lakhs of employees do so grudgingly.

Indeed they cannot collude with their employees to help the latter reduce their tax liability.

But, there are a couple of indulgences offered to the salaried with respect to TDS:

a) An employer can pay tax on perquisites on behalf of his employees either selectively or en bloc and to this extent the employee(s) would be absolved of their tax liability; and

b) An employer can consider loss from house properties, both self-occupied and rented out, while deducting tax at source from the salary. To wit, if the salary income is Rs 10 lakh and loss from a self-occupied house is Rs 2 lakh, the employer would deduct tax only on Rs 8 lakh.

Is the income tax department suspecting any fraud on these two accounts?  If it does, it can go for the jugular of such black sheep employers.

The only freedom given to employees is to manipulate figures and information not given to their employers.  Areas that lend themselves to such manipulation are:

a) Claim losses from house property not disclosed to the employer themselves and also claim losses from income from other sources, once again not disclosed to the employer. An employee cannot set off his business loss against his salary income thanks to an intelligent amendment made by Manmohan Singh in his avatar as Finance Minister a long time ago. He plugged the escape route by rightly saying that employment precludes business. And losses from short-term or long-term capital gains cannot be set off, once again a prudent amendment made by Singh as the salaried used it to evade taxes.  So there is limited scope for cooking up losses set off against one’s salary while filing returns.

b) Claim Section 80G donations not disclosed to employers and claim relief at the source itself. Employers have been permitted to consider only donations to The Jawaharlal Nehru Memorial Fund; The Prime Minister’s Drought Relief Fund; The National Children’s Fund; The Indira Gandhi Memorial Trust; The Rajiv Gandhi Foundation and to the following bodies to the extent of 100 percent of the contribution: The National   Defence  Fund  or  the Prime Minister’s National Relief Fund; The Prime Minister’s Armenia Earthquake Relief Fund; The Africa (Public Contribution-India) Fund; The National Foundation for Communal Harmony; The Chief Minister’s Earthquake Relief Fund, Maharashtra; The National Blood Transfusion Council; The State Blood Transfusion Council; The Army Central Welfare Fund; The Indian Naval Benevolent Fund; The Air Force Central Welfare Fund; The Andhra Pradesh Chief Minister’s Cyclone Relief Fund, 1996; The National Illness Assistance Fund; The Chief Minister’s Relief Fund or Lieutenant Governor’s Relief Fund, in respect of any State or Union Territory, as the case may be, subject to certain conditions; The University or educational institution of national eminence approved by the prescribed authority; The National Sports Fund to be set up by the Central Government; The National Cultural Fund set up by the Central Government; The Fund for Technology Development and Application set up by the Central Government; The national trust for welfare of persons with autism, cerebral palsy mental retardation and multiple disabilities.

The above list shows that the employer has been allowed to consider only ‘sarkari’ donations as opposed to private trust donations howsoever laudable the latter’s causes may be.  This is because he is not in a position to ascertain the genuineness of private charities; only the department can.

Is it the department’s allegation that the Bengaluru consultant is aiding the wholesale misuse of Section 80G by manipulating fake donations to charities? If indeed it suspects so, it must deal with him.

The short point is that the ball is in the department’s court to proceed against delinquent employees, employers and the said consultant. Therefore let it not issue a mere warning.  And let it not threaten to mention the names of the delinquent employees to their employers. What is the point if they are colluding with each other? The department must crack the whip, period.

(The author is a senior columnist and tweets @smurlidharan)


Updated Date: Apr 19, 2018 20:03 PM

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