The Tax Tangle

The government asking corporates and professionals to report estimates of income and tax liability will add to the compliance burden.

20 The government asking corporates and professionals to report estimates of income and tax liability will add to the compliance burden

At a time when compliance issues under the Goods and Services Tax ( GST) are proving to be a nightmare, the government has dropped another bomb by asking corporate and professional taxpayers to voluntarily report estimates of current year’s income, tax payment and advance tax liability.

The move, which is likely to increase the compliance burden of taxpayers yet again, shows the government’s aggressive stance towards any tax evasion or deferment of tax payment. However, it could prove to be another blow to businesses, already hit by the government’s over-the-top quest for the eradication of black money and tax evasion.

In a draft notification, the Central Board of Direct Taxes has “proposed to create a mechanism for self-reporting of estimates of current income, tax payment and advance tax liability by companies and persons eligible for tax audit on a voluntary basis”.

The initiative aims to ensure that taxpayers would not defer advance tax payments by underestimating income and tax liabilities. The threshold for a tax audit is a turnover of `1 crore for businesses and `50 lakh for professionals.

The government says the move is necessary to ensure a continuous flow of tax revenues throughout the year so that it can meet various budgetary allocations.

Although it is just a draft notification and the government has not taken a final call, taxpayers are worried. If the draft rule is notified in its current form, it would lead to additional compliance and unnecessary harassment of taxpayers.

The draft notification says that a taxpayer should report the estimated income and payment of taxes – as on September 30 of the financial year – by November 15 of that year. If the estimated income (as on September 30) is `5 lakh or 10 per cent (whichever is higher) less than the income generated in the year-ago period, the taxpayer has to report the details as on December 31, and it must be be submitted by January 31.

Commenting on the development, Shailesh Kumar, Director, direct taxes, at Nangia & Co LLP, says, “Right now you have to report your income only once, at the time of filing the returns. Whatever be the estimates of your advance tax, that is an internal exercise. But going ahead, you not only have to report current year’s estimates but also have to compare it with the previous year’s. If there is any drastic change in income, you have to do a bit of explaining.”

Amit Singhania, Partner ( Tax) at Amarchand Mangaldas & Co, says if the estimates made in advance are more than the final income and tax liability calculation, the taxpayer may be hauled up.

Experts also question the rationale of the new reporting requirement given that a taxpayer is any way liable to pay an interest if the advance tax paid falls short of the assessed tax by 10 per cent or more. The interest charged is 1 per cent per month.

According to sources, industry bodies are preparing a representation to convince the government that the notification would be detrimental to the businesses already struggling with GST compliance and it should be completely withdrawn. It remains to be seen if the authorities will soften their stand and roll back the initiative. ~

The government says the move is necessary to ensure a continuous flow of tax revenues to meet budgetary allocations