Tighter scrutiny after note ban led to rise in PAN registrations
CRACKDOWN MODE 475 properties attached, IT returns rise 18%, PAN registrations up three fold
NEW DELHI: Heightened surveillance and a crackdown on black money has led to a threefold increase in PAN (permanent account number) registrations, an 18% rise in income tax returns and a significant increase in the number of properties seized by the tax department to 475.
“This is the effect of demonetisation and operation clean money launched in January. Data analysis of information collected during the months after demonetisation has led to higher surveillance and a more effective crackdown on black money,” said a top official in the tax department who asked not to be named. The department aims to bring large tax evaders to account and gently persuade those making minor violations to comply with the rules.
The official’s comments come days before the first anniversary of last year’s invalidation of highdenomination currency notes on November 8, 2016. With almost all the money in circulation before the exercise – around 86% of this was in the form of the invalidated notes – coming back to the banking system, the tax department has embarked on an exercise to follow the money and track down defaulters. The Benami Transactions (Prohibition) Act was notified for implementation on 1 November, last year. Since then, show cause notices have been issued in 520 cases. Benami properties are those that are held by an owner through proxies. The Indian government is celebrating November 8 as anti-black money day.
The official said that out of 1.8 million of questionable cash deposits made after demonetisation, specific cases of suspected tax evasion and other non-compliance have been identified for scrutiny. These include about 22,000 cases of “erratic behaviour” of people who have either filed returns for the first time or have revised their returns for financial year 2015-16 (filed in 2016-17) to justify their cash deposits after the invalidation of high-value bank notes.
Of the 1.8 million deposits, around 200,000 were deposits of more than ₹50 lakh in bank accounts in the days following demonetisation; 70,000 of these are by individuals who have not filed their tax returns yet. The official said notices will be issued to them after November 7, the last date for filing returns with audit reports.
The official added that while questionnaires were sent to all 1.8 million, only 1.2 million have responded thus far. The tax department is in the process of writing to the 600,000 individuals that have not responded. If they fail to respond, action such as searches and surveys may be required, the official said.
The tax department, this person pointed out, will also try and match the information in the explanations provided with that in tax returns and also with data sourced from third parties such as banks. The department has two years to complete the scrutiny and assessment from the year in which the return is filed.
“The priority is to ensure compliance by those who pose large risk of revenue leakage to the exchequer,” said the official.
An expert welcomed databased investigations.
“Tax compliance is definitely improving as the data collected by the government after demonetisation acts as a deterrent. The safeguard needed here is to ensure that, to the extent possible, this vast data is used carefully and does not result in enquiries which are avoidable,” said Rahul Garg, partner, PwC India, an accounting firm.
In a statement issued in August, the tax department said that tax searches increased 158% since November 2016, resulting in the doubling of black money seized to ₹1,469 crore from ₹712 crore in the year-ago period. Official data for the past 10 years show a 154% increase in tax raids under the Modi government in 2016-17 compared to 2006-07, leading to an almost four-fold increase in black money recovery.
The biggest increase in admission of undisclosed income came in 2016-17 with tax payers reporting undisclosed income of ₹15,496 crore, a 38% jump from the previous year’s ₹11,226 crore.
A second official, who also spoke on condition of anonymity, said that the impact of demonetization can be seen in the surge in PAN registrations every month. From around 2.7 million sign-ups in November 2016, the number went up to 9.6 million in April 2017. In the past three months, an average of 6.6 million people have signed up for a PAN every month.
“The number of tax returns filed for assessment year 2016-17 has also gone up 55.4 million, an increase of close to 18% (from the previous assessment year),” added the second officer mentioned above. To be sure, this number is based on the first deadline for filing tax, and the real impact can only be gauged by early 2018.
Another area in which the tax department has made progress in the past year is benami properties. It has attached 475 properties, worth over ₹1,600 crore, since the Benami Transactions (Prohibition) Act was notified for implementation on November 1, 2016. Data available from the finance ministry shows that the maximum benami properties were seized in Gujarat followed by Tamil Nadu, Rajasthan, Mumbai and Bhopal.
These numbers are significant. The Benami Act was first notified in 1988, but there wasn’t a single case where property was attached till the act was strengthened last November.