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Look Who is Crying “Tax Terrorism” and What Are the Facts

tds default

As the direct tax collection under the Modi Government has increased significantly, it seems that the scaremongering and efforts to mislead with regard to tax collection have also been on the rise. In our earlier article, we have explained What Do the Direct Tax Statistics Reflect About the India Economy?. In the article, we have argued how the increase in the tax collection elucidates that the trust of people on the government has increased since they might be convinced that the tax paid by them will be used by the administration with due diligence. Nevertheless, certain opinion makers have tried to weave a negative narrative on the increasing direct tax collection, which we busted in our article Does Increase in Direct Tax Collection Reflect a Widening Gap Between the Rich and the Poor? – A Fact Check. Now, a false cry over TDS default has been raised.

Recently, a set of news reports have tried to evoke fear among tax paying citizens. These reports give an impression that the government is punishing the taxpayers even for the slightest mistakes. Perhaps knowing the psychological effect such reports can cause on common people, the Central Board of Direct Taxes (CBDT) has issued statement to assert that the news of “en masse issue of prosecution notices to small companies for TDS default is completely misleading and full of factual inaccuracies.”

How the ‘Tax Terrorism’ Narrative Tried to Takeoff

A report from Times of India on January 20, 2019, was titled, Income-Tax officials given targets for serving notices for TDS default. Another report from the same newspaper, on the same day, headlined as Thousands of taxpayers get notices for minor defaults. On January 19, 2019, BloombergQuint published an article titled Tax Department’s Prosecution Notices Galore.

Perhaps taking a cue from all these news reports, former finance minister P Chidambaram has termed these reported actions by the tax department as “tax terrorism”.

Prior to Chidambaram’s statement, this is how media presented the story on the tax department. There is an attemp to term any legal action by the tax department as ‘tax terrorism.’


The Facts Set Straight by CBDT

CBDT has factually rebutted the harassment and ‘tax terrorism’ angle being floated around through media reports. Below are the main points:

  • Prosecution Show Cause Notices have been issued only in big cases where more than Rs 5 lakh of tax was collected as TDS from employees etc and yet the same was not deposited with the Income Tax Department in time.
  • In a country where 6 Crore returns are filed every year, only a total of 1,400 prosecutions have been filed so far. How this is interpreted as harassment or tax terrorism?
  • In last one month, only in 50 big cases prosecution notices have been issued by Mumbai IT TDS office. Out of these, in 80% of the cases the TDS tax default is above Rs 10 lakh and in 10 % cases, TDS default is between Rs. 5 to Rs.10 lakh. In the remaining 10% of cases, TDS default is of more than Rs. 1 crore as detected in the survey.
  • Prosecutions have also recently been launched against 4 big business houses where more than Rs 50 Crore of tax was collected by them from the taxpayers and yet not deposited with the Government in time.

Thus, the reports of Income Tax Department harassing or terrorizing the small-time defaulters is far from the truth. When a company deducts a TDS amount from employees and does not deposit the money, the sufferers are a large number of employees who could not claim the credit of the tax deducted. In this background, it is pertinent to ask for whose benefit the current, false cry of “tax terrorism” is being raised?