Direct Tax code: The government has started the consultation process for reviewing the Income Tax Act, 1961

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.

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.

Leadership
Business Storytelling Masterclass
By - Ameen Haque, Founder of Storywallahs
Leadership
Crafting a Powerful Startup Value Proposition
By - Dr. Anu Khanchandani, Startup Coach with more than 25 years of experience
Finance
Crypto & NFT Mastery: From Basics to Advanced
By - CA Raj K Agrawal, Chartered Accountant
Web Development
Intermediate C++ Skills: Master Pointers, Structures and File Stream
By - Metla Sudha Sekhar, IT Specialist and Developer
Data Science
SQL Server Bootcamp 2024: Transform from Beginner to Pro
By - Metla Sudha Sekhar, IT Specialist and Developer
Artificial Intelligence(AI)
Basics of Generative AI: Unveiling Tomorrow's Innovations
By - Metla Sudha Sekhar, IT Specialist and Developer
Leadership
Validating Your Startup Idea: Steps to Ensure Market Fit
By - Dr. Anu Khanchandani, Startup Coach with more than 25 years of experience
Finance
Startup Fundraising: Essential Tactics for Securing Capital
By - Dr. Anu Khanchandani, Startup Coach with more than 25 years of experience
Web Development
C++ Fundamentals for Absolute Beginners
By - Metla Sudha Sekhar, IT Specialist and Developer
Office Productivity
Mastering Google Sheets: Unleash the Power of Excel and Advance Analysis
By - Metla Sudha Sekhar, IT Specialist and Developer
Artificial Intelligence(AI)
AI and Analytics based Business Strategy
By - Tanusree De, Managing Director- Accenture Technology Lead, Trustworthy AI Center of Excellence: ATCI
Office Productivity
Mastering Microsoft Office: Word, Excel, PowerPoint, and 365
By - Metla Sudha Sekhar, IT Specialist and Developer
Web Development
Advanced C++ Mastery: OOPs and Template Techniques
By - Metla Sudha Sekhar, IT Specialist and Developer
Leadership
Building Your Winning Startup Team: Key Strategies for Success
By - Dr. Anu Khanchandani, Startup Coach with more than 25 years of experience
Web Development
Master RESTful APIs with Python and Django REST Framework: Web API Development
By - Metla Sudha Sekhar, IT Specialist and Developer
Marketing
Digital marketing - Wordpress Website Development
By - Shraddha Somani, Digital Marketing Trainer, Consultant, Strategiest and Subject Matter expert
Artificial Intelligence(AI)
Tabnine AI Masterclass: Optimize Your Coding Efficiency
By - Metla Sudha Sekhar, IT Specialist and Developer
Office Productivity
Zero to Hero in Microsoft Excel: Complete Excel guide 2024
By - Metla Sudha Sekhar, IT Specialist and Developer
Marketing
Digital Marketing Masterclass by Neil Patel
By - Neil Patel, Co-Founder and Author at Neil Patel Digital Digital Marketing Guru
Marketing
Marketing & Sales Strategies for Startups: From Concept to Conversion
By - Dr. Anu Khanchandani, Startup Coach with more than 25 years of experience
Finance
Financial Literacy i.e Lets Crack the Billionaire Code
By - CA Rahul Gupta, CA with 10+ years of experience and Accounting Educator
Office Productivity
Excel Essentials to Expert: Your Complete Guide
By - Study At Home, Quality Education Anytime, Anywhere

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.)(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