Easy Money. The taxman is tracking you

Quite a few people have a pathological aversion to paying taxes. To avoid tax, they put through convoluted transactions, enlist the help of spouses, friends and relatives or even open dozens of bank accounts to evade the taxman. But technology is transforming the way the Indian tax department operates. So, anyone who thinks that such old-fashioned strategies can save them from the taxman is living under a delusion.

Tracked by TIN As a part of an e-governance initiative of the Government, the Income Tax Department, in 2004-05, flagged off the Tax Information Network (TIN). The TIN’s basic purpose is to use technology for computerising the collection, accounting and monitoring all direct taxes down to each individual account, so that leakages are plugged.

Employers, banks and other organisations who deduct tax at source from your salary or income are required to file complete details of it (citing your PAN) with the taxman. This is then matched with the actual tax you deposit with the bank to arrive at any discrepancies. And for good measure, the tax department also takes stock of all your high-value transactions for the year, and can investigate if you own disproportionate assets, a la Jayalalithaa.

AIRing out high value deals If you thought the taxman picks only on the salaried and lets the real fat cats go tax-free, you will be happy to learn about the Annual Information return or AIR. From financial year 2004-05, the Income Tax Department has been collecting details of all the individuals who make ‘high value transactions’ during the year from the organisations which facilitate them.

Banks, credit card issuers, mutual fund houses, companies, registrars and the RBI are legally bound to file the AIR with the tax department. This filing not only consolidates your transactions through the year, it also cites your PAN number. The intent behind this filing is to track down all those who lead the lifestyles of the rich and the famous, and yet get by with skimpy payments to the taxman.

But it is not just the wealthy tax evaders that the tax department is after. It is quite interested in the small fish too. One tool it employs effectively is the ubiquitous Tax Deducted at Source (TDS). Today, TDS is applicable on practically every source of income you can think of. Salaries are always paid after a TDS deduction by the employer. Other non-salary incomes are subject to TDS too — interest from investments, rent received from entities, commission, professional fees, even lottery earnings.

In most cases, the TDS payments don’t actually represent your entire tax liability for the year. They are only a token deduction and you still have to calculate and pay taxes at your income tax slab rate. Here the taxman will know immediately if you skip the residual payment because he already has all the details of the payment you received, thanks to the TIN.

In recent years, finance ministers have applied TDS to several new transactions where evasion was pervasive. In 2013, it was made compulsory for all buyers of property valued at over ₹50 lakh to deduct TDS at 1 per cent before paying the seller. From October 1 this year, a TDS of 2 per cent applies to all insurance proceeds that you receive from insurance plans where the premium is more than 10 per cent of the life cover. Opening dozens of bank accounts and submitting form 15G or 15H to avoid TDS is no longer foolproof. The tax department requires all banks to specifically flag depositors who claim such exemptions. So, given all the effort the tax department is taking to stay two steps ahead of evaders, why go to so much trouble to evade taxes? Just pay up and rest easy.

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