Income Tax Act review: Will jail punishment for not filing ITR, depositing TDS be relaxed? The review is being done to reduce litigation and make it easy to understand for the common man. There are certain provisions currently under the Act where non-complying can lead to jail time for taxpayers
Naveen Wadhwa
Vice-President, Taxmann
Ruchesh Sinha
Advocate
In the July 2024 Budget speech, the finance minister announced a comprehensive review of the Income Tax Act to make it concise, lucid, and easy to understand and reduce litigation. Consequently, the apex body that administers the Income Tax Act, the Central Board of Direct Tax ('CBDT'), has formed an internal committee to review the Income Tax Act and has invited comments accordingly. The present article highlights the prosecution provision of the Income Tax Act, which needs overhauling to achieve the objective mentioned by the finance minister.
#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} Prosecution is a criminal proceeding that should be the repercussion of making severe breaches of the income tax law. This is in addition to the penalty, interest, and fees levied on taxpayers for such violations. Some of the Income-tax Act provisions under which a taxpayer can be prosecuted with imprisonment are explained below, along with the changes the committee should consider making.
Prosecution for delay in deposit of TDS and TCS
Section 276B of the Income Tax Act provides for the prosecution of persons who have not credited/deposited the tax deducted at source (TDS). A proviso to the said section has been introduced by the Budget 2024 with effect from October 1, 2024, that if the TDS is deposited with the government any time before the TDS return filing, the provisions for prosecution shall not apply. It is recommended that this relaxation should be given retrospectively to provide immunity in the old cases. A similar relaxation should be introduced in Section 276BB for prosecution for delay in depositing tax collected at source (TCS).Prosecution for wilful evasion of tax
Section 276C pertains to the prosecution of a person when there is a 'wilful' attempt to evade tax or a 'wilful' attempt to not make payment to tax . The term "wilful" signifies a deliberate, intentional act of evading tax or attempting not to pay it. This is different from mere negligence or inadvertent error. A wilful attempt requires a clear intention to avoid paying tax that the person knows is due. However, the Act has not defined the word "wilful" and it is left to the tax officer's discretion to decide what is wilful and what is negligence. Thus, it often results in endless litigation. It is recommended that the provisions be modified to allow the taxpayer to argue that the act is not wilful. Further, it is also proposed that the prosecution should not be initiated while the assessment is under litigation until the matter is finally decided.Prosecution for failure to file ITR
Section 276CC of the Income Tax Act, 1961, pertains to prosecution for not filing income tax returns. It is recommended that no prosecution should be launched under this provision against marginalised taxpayers, such as senior citizens, women taxpayers, and taxpayers whose income is below the exemption limit. The strict provisions of this section should be applied only in genuine cases and not in the other instances mentioned before which have not filed the income tax return.
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Prosecution for failure to furnish details
Section 276D of the Income Tax Act, 1961, pertains to prosecution when there is a failure to produce accounts and documents. However, no specific time limit is specified in this regard in the provision. It is proposed that the time limit within which the documents and accounts must be provided should be specified.Prosecution for making false representation
Section 277 pertains to prosecution when a person makes a false representation and does not state or hide the truth. It is proposed that prosecution should be launched only where there is a "wilful" attempt to furnish false information, thereby allowing the taxpayer to argue that the false information was not provided wilfully.Prosecution for accommodation entries
Section 277A pertains to the falsification of books of account or documents, etc. The present section provides for taking action against the "first person" (i.e., the alleged accommodation entry provider) and not against the "second person" (i.e., the receiver of the accommodation entry. It is proposed that prosecution should be contemplated in the case of such a second person to curb the lure of entering into illegitimate business entirely.Prosecution proceedings are rigorous. Therefore, they should not be used as a tool to inconvenience the taxpayers. The above changes would help balance the aim of the government to provide ease of doing business with making taxpayers more tax-compliant.
(The article is written by CA Naveen Wadhwa and Advocate Ruchesh Sinha.) #sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
This story originally appeared on: India Times - Author:Faqs of Insurances
