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The Taxman is on the trail of income emanating from below-the-market-rate property sale and unusual share transactions of unlisted companies. The Finance Ministry has asked the Central Board of Direct Taxation (CBDT) to collect advance taxes on all such incomes.
In its strategic plan for 2015-16, the CBDT has directed the Income Tax Department to keep an eye on all such transactions. The importance of advance tax for the Centre can be gauged from the fact that, of the ₹8.06-lakh crore gross direct tax collection in 2014-15, as much as ₹3.30-lakh crore, or 41 per cent, was as advance tax.
The strategic plan, which has been accessed by BusinessLine , points out that Section 56 (income from other sources) of the Income Tax Act should be applied to any property acquired at a rate lower than the prevailing market rate. Both the seller and the buyer will have to pay advance taxes.
Share transactions Officers have also been asked to invoke Section 56(2) (VII B) of the Act for share transactions of private companies, where the share prices have been valued much higher the book value. Advance tax will have to be paid on such transactions, too.
A taxation expert with one of the largest audit companies in the country, on conditions of anonymity, said that these measures have been devised by the CBDT following the Satyam, Reddy Brothers and other scams, where shares of unlisted companies changed hands several times purely to avoid tax.
Inter-company share transactions of unlisted outfits have been attracting a lot of premium.
“Earlier, the Ministry of Company Affairs was interested in such transactions and now the Income Tax Department is showing interest. Floating too many companies and diverting money through loans and investments is now getting cornered either by tax laws, corporate laws or transfer pricing,” the expert said.
The Indian corporate world has been guilty of using such mechanism for their own ends, the expert said.
Another taxation lawyer said that such measures devised by CBDT would be difficult to implement as the IT officers are already bogged down with existing work. They would need additional manpower.
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