The Hindu Business Line : Economic criteria in the AIR

The six-by-one economic criteria for mandatory filing of income-tax return, launched with a lot of fanfare, made a tame exit last year. In any investigative setup, including the income-tax department, the capacity to dwell deep into the matter is conditioned not by the quantity of information but by its quality and timeliness.

The economic criteria scheme miserably failed this test and, hence, was doomed to failure even before it started. By asking even a small flat owner, a telephone subscriber and a car owner to mandatorily file income-tax return, the department attracted heaps of papers that simply didn’t shed focussed and useful light on tax evasion in the country besides defying meaningful follow-up action which were the raison d’etre of the scheme — to gun after those who enjoy these symbols of wealth but do not file returns much less pay tax.

More focussed

On this touchstone, rule 114E made pursuant to Section 285BA calling upon select persons to file Annual Information Report (AIR) is a more focused exercise given the fact that it trains its guns on transactions likely to yield results rather than chasing a chimera. A person who has applied for shares of a company by paying Rs 1 lakh upfront is required to be reported to the tax authorities through the AIR by the company. Parenthetically, it may be mentioned that this is also the cut-off point for making the grade as a retail investor.

Therefore, it is well possible that a person wanting to ensure allotment may tap the retail portion to the hilt perhaps innocently unaware that he has himself set the tax sleuths after himself. Calling upon registrars to notify persons who have got immovable property registered for Rs 30 lakh and more is of a piece with the same focussed approach as indeed are the obligations cast on banks to report deposit of Rs 10 lakh or more in a year in cash into a savings bank account and payments made of Rs 2 lakh or more against bills raised by them on a credit card.

The road tax offices across the country could also be roped in with the obligation to report registration of swanky cars. In fact, the scope of the AIR may be gradually expanded so as to enable the tax administration to carry out its job of prevention of tax evasion.

Volunteer information

AIR emanates from service providers such as banks and registrars as well as from companies and mutual funds. But the income-tax return forms issued this year vide ITR series is the harbinger of things to come — it has called upon the taxpayers to volunteer information which, in any case, would filter in from the authorities and banks enjoined by rule 114E to file AIR.

The purpose seems to be not only corroboration but more significantly to alert and forewarn the taxpayers in case they have been blissfully oblivious of the trouble ahead should the tax authorities choose to strike with the ammunition provided by the AIR.

It is well possible that the tax department might as well revert to the regime of economic criteria for mandatory filing of returns with one vital difference — dovetailing the regime with AIR instead of with puerile criteria such as occupation of house, subscription to mobile phones, etc. In other words, it is well possible that those figuring in the AIR might be called upon to file returns. Indeed the pincer of AIR and return could foster better voluntary tax compliance. Having closed in on them, it would now be able to concentrate on the renegade and recalcitrant.

(The author is a Delhi-based chartered accountant. E-mail: m_shrinivasan@yahoo.co.in)

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