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Why you have to be careful while making high value spending or investments


India is known for its Information Technology in the world. In the process of selling software to the world, they have also (knowingly or unknowingly) sold a software to Income Tax (IT) department. In return, the income tax department is sending notices to the people!  We can call it as ‘Notice from the IT (Information Technology) by the IT (Income Tax) to the IT (Indian Taxpayers). Yay! True democracy prevails in India


Mr. Rajneesh, one of our esteemed clients had to say something about Indian Taxes. Whenever we suggested him to pay taxes, he used to say ‘I know many businessmen who are doing Crores of Turnover without paying any taxes, be it VAT or Income Tax’. He continued to say that Those who file the returns, pay the taxes and are harassed by the department. If you don’t pay, no one will come to know’


Maybe true, but such stories will be a history soon. Over the last 3-4 years, the department has heavily invested on IT (Information Technology) initiatives. The days are not far when it is possible to catch each and every tax evader.


What Income Tax department does?


They collect information about certain transactions from different service providers such as banks, mutual funds, sub-registrar’s office etc. The department through Computer Assisted Scrutiny System (CASS) selects cases (where PAN is quoted) on random basis for scrutiny assessment (where the taxpayer or his representative has to appear before the officer and produce the documents in support of his income and expenses).


Does this mean that those who are not giving PAN details will go scot-free? No. The department has a mechanism in place to plug this loophole. They have another wing called CIB (Central Information Branch) to analyze high value transactions which do not have PAN details. So, those who have not given PAN information to the bank, sub-registrar’s office, co-operative banks, vehicle registration, etc will get a Notice from CIB, Income Tax department.


E – Initiative of Income Tax department

I can only say that E-Initiative is getting better day by day. They started with E- filing, e-payment, Tax Information Network, e-refund and now moving to e-governance such as annual information returns, 360 degree profile of taxpayer, tax credit statements, sharing of knowledge within organization and also sharing or collecting information from other tax departments such as Service Tax, State VAT departments.


I have bought a site without giving PAN details, but I haven’t got any notice from the department?” is the standard reply I get from some people when I give the above information. So, the answer to this kind of question is – maybe yes, you are lucky for not having got the notice. But remember, some of my known people are getting notices pertaining to 2009-10 now!


It is not a crime to get Notice from the department; neither am I scaring people about Income tax department. All I am saying is that while dealing with financial transactions, keep the records straight. There should be a co-relation to your means of income and your spending. In case of discrepancy, apart from the taxes, one will end up paying exorbitant interest and penalty.


Btw what types of transactions get reported to Income Tax department? Please read tomorrow’s post.


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About CA Prasad Chartered Accountant

CA Prasad Chartered Accountant
CA Prasad is a practicing Chartered Accountant and partner in Bangalore -based CA Firm. For further information or query, please email it to [email protected]