I-T target hits record tax refund hurdle

Record tax refunds by the income tax (I-T) department so far this financial year (2016-17) to firms and individuals have adversely impacted the direct tax collection figures.

With the year ending this month, the collection figures indicate that the finance ministry is unlikely to meet its collection target, according to two I-T department officials.

According to the tax department data, direct tax collection at the end of February was ~6.13 lakh crore, or 72.4 per cent of the full year’s target of ~8.47 lakh crore. In 2015-16, the department had collected ~5.55 lakh crore by February, and ~7.45 lakh crore by the end of the year.

I-T collection, as a percentage of the target, till February this year is 200 basis points lower than February last year. In 2015-16, there was a shortfall of ~53,000 crore between the target and collections.

The Mumbai circle, which contributes over 33 per cent of direct tax collection, has collected ~1.88 lakh crore, or 69.6 per cent, against a target of ~2.7 lakh crore.

According to tax officials, the emphasis on expeditious clearing of refunds affected the tax collection numbers, leading to the shortfall.

The I-T department had issued refunds to the tune of ~1.42 lakh crore in two tranches so far this financial year, 41.5 per cent higher than last year’s refunds. This was the first time the tax department gave high priority to refunds.

A senior I-T official said tax refunds would be calculated against this year’s collection even if they were for previous years.

Besides refunds reducing the tax kitty, the tax deducted at source (TDS), which contributes 37 per cent of the gross direct tax revenue before refunds, collection has been lower than in the previous year.

“As TDS contributes a significant portion in the tax collection, its evergrowing importance cannot be ignored,” the official added.

Official data suggest Mumbai’s TDS collection of ~80,000 crore (till February) was 2.6 per cent lower than that of the previous year. Mumbai’s TDS target this year is ~1 lakh crore. In 2015-16, TDS collection was ~3.25 lakh crore.

To bolster the TDS figures, the tax department has sent 10,000 notices to corporate entities and individuals in Mumbai alone.

“Besides the regular explanation notices, we have identified and issued notices to 1,000 TDS defaulters who have deducted the tax but have not deposited it with the department,” said a senior I-T officer in the TDS section.

These 1,000 notices have been issued under Section 276 (b) of the I-T Act. The punishment for defaulters could be rigorous imprisonment for at least three months, which can be extended to seven years, along with a penalty.

To tackle the tricky situation, the department is putting rigorous efforts to ensure that due taxes under this category are deposited accurately and on time. For this, it is doing spot verifications, including surveys. Cases where a person has either not deducted TDS or has deducted at lower rates, the I-T department will initiate penalty proceeding under Section 271C.

Sources said that the Central Board of Direct Taxes (CBDT) had instructed the TDS department to undertake multiple steps to augment revenue from TDS as it was a non-obtrusive but powerful instrument to prevent tax evasion as well as to expand the tax net.