The Hindu Business Line : Dodger trap in tax database

THE Finance (No. 2) Bill, 2004, contains several pluses. The proposal to do away with the need to assiduously collect TDS certificates, preserve them as though your life depended on them and attach them with the income-tax return in respect of taxes deducted at source on or after April 1, 2005, is one such. It, however, has not received the kind of attention and adulation it ought to have. The move is at once a taxpayer friendly and an anti-evasion measure depending upon whether the person from whose income-tax has been deducted is an honest taxpayer or a tax dodger. First, the taxpayer-friendly nature of the proposed move.

The implications of the proposed amendment are awesome, especially for companies and other big-ticket taxpayers. For, as it is, they have difficult time following up delivery of such certificates from persons who have deducted them, collect them, preserve them, photocopy them and attach the originals along with the income-tax return. Unless the originals are so submitted to the tax authorities, credit is not given to them for tax thus paid. This, despite the fact that the persons deducting/collecting tax at source give to the tax authorities meticulous and periodic details of the persons from whose income-tax has been so deducted/collected. In a way, this is another instance of `left hand right hand' syndrome — one wing of the same department feigning ignorance of what is happening just across the corridor. Taxpayers, thus, willy-nilly go through the hard grind culminating in the filing of all the TDS certificates along with their income-tax return at a tremendous cost. But the tax administration does not guarantee safekeeping of all these certificates. Not uncommonly, some of these certificates, bursting as they do at the seams, pop out of the bulging file(s) and spill onto the floor.

This may amuse the readers but taxpayers have a hard time in its aftermath — they have to scurry for duplicates and till such time they procure them, credit for tax paid via TDS is denied. All this would happily become things of past come April 2005. The tax administration has been told not to seek the information which it already has. Only the database has to be used imaginatively.

Environmentalists also cavil at this regime — it engenders a colossal and wanton waste of forest resources that go into making of paper.More than the physical and mental relief, the move in any case has greater significance; it sends strong and right signals to tax-evaders. One, the tax administration is being geared up and bracing itself to handle voluminous mass of information that is submitted by those deducting or collecting tax at source. Two, and more ominously for tax evaders, this information is not any longer going to be merely filed away. There would be cross verification. Indeed, this could flutter their dovecots. And as if to reinforce this message, the proposed amendment also casts a burden on the administration to send a statement of TDS to each one of the taxpayers from whose income/receipt/payment tax has been deducted/collected.

At first flush, this may seem to be a needless paperwork given the fact that taxpayers are sought to be spared the burden of attaching any proof of having paid tax via TDS. But the intention is to put the fear of God into the diehard tax-evaders many of whom hitherto have blithely been believing that the tax inspector will not after all come a calling. A compendious statement from the tax department detailing their various receipts may well send them shaking in their boots. They would have to cough up the remaining tax given the fact that often TDS is only an ad hoc percentage of the actual tax liability besides becoming tax-compliant otherwise.

What Mr P. Chidambaram has left unsaid is that the Department would be fully geared by the beginning of the next fisc insofar as its ongoing computerisation efforts are concerned. Will it, in fact, be so?

(The author is a Delhi-based chartered accountant.)