INTRODUCTION
The Income Tax Department has been super active and aggressive during the tenure of the current Indian Government. It has sought to fulfill the promises to detect tax evasion, route out Black Money, and get far better compliance in the Tax Laws of India. The Indian government has not been able to fulfill the promise to bring back India’s black money stashed abroad, back to India, but as far as domestic tax compliance and collection is concerned, the Income Tax department has managed to a splendid Job. The rate of tax collection and tax filed has been shooting up. India as a country with such a large population has traditionally had a very low taxpayer base. The number of returns filed in India has been much lower compared to the size of the GDP as well as the population that we have. The cause of this is the greed of people. The taxpayers spare no effort in maximizing his profits and attracting the least incidence. But on the other hand, every businessman tries to maximize the profits by reducing the cost, he also arranges a way that he pays the least amount of tax, this is where the concept of TAX PLANNING comes in light. But since in India, the rate of filing returns are very low, people here try to avoid paying taxes and this is known as TAX EVASION.
METHODS COMMONLY USED BY TAXPAYERS TO MINIMISE TAX LIABILITY [1]
- Tax Planning
- Tax Avoidance
- Tax Evasion
TAX PLANNING: Tax Planning is the arrangement of financial activities in such a manner that maximum tax benefits are enjoyed by making use of all beneficial provisions of tax laws. Tax Planning is permissible under law and is treated as a legal way of planning tax.
TAX AVOIDANCE: Tax Avoidance is minimizing the incidence of tax by adjusting the matter in such a manner that although it within the boundary of taxation laws but the advantages of the same have been taken by finding out loopholes in the laws. The shortest definition of tax avoidance is that it is the art of dodging tax without breaking the law. [2]
TAX EVASION: Deceitful citizens evade their tax liability by dishonest means [3]. Some of which are-
- Concealment of Income
- Inflation of expenses to suppress Income
- Falsification of Accounts
- Conscious violations of rules
Tax Evasion is an attempt to avoid tax by the caricature of facts and fabrication of accounts. The Vodafone case, Satyam Scam is some of the biggest cases in Indian history of tax avoidance and evasion. These are the cases where tax evasion was reflected and which causes a huge loss to the Indian economy. But there are many middle-class and upper-middle-class people who aren’t even registered as Tax Payer in the Income Tax Department. They operate the businesses below the radar. To avoid paying tax, people operate their businesses below the radar of the Income Tax Department in this manner they will pay a minimum of tax and make huge profit out of it, this method is known as Operate below the Radar.
Operating Below the Radar – The most Common way of Evading the Tax: A typical taxpayer, who becomes very wealthy by evading tax, would operate primarily in cash. This tax evader wouldn’t have a PAN number, wouldn’t file any return and in this way, he makes amass wealth but this leads to a country losing its legitimate tax collections. These tax evaders stash their money out of the country from very famous HAWALA ROUTES. This black money needs to stay in India. To resolve this issue the Government was working for many years and came up with a very popular scheme like TAX DISCLOSURE SCHEME, AMNESTY SCHEME. The government did not come with concessional tax rates, so that the people will be encouraged to pay taxes, but they came up with a threat “Either comply with the scheme NOW or later pay the most strict and rigorous Penalty and Prosecution” But the government did not receive the response they were expecting, even though the Government and the Income Tax Department tried its best to have huge compliance with the scheme to root out black money. Meanwhile, the government was also considerably started strengthening the Income Tax laws with the main intention of preventing cash transactions. Here comes the concept of DIGITAL INDIA. The need of the time was to prohibit cash transaction and to declare them as illegal means of doing business. The government had realized that it is very important to move from the Cash Economy to the Cheque or Digital Economy. Hence, today we cannot incur an expenditure exceeding Rs. 10,000 in cash as a business expense and if it is done, then it will be considered as an illegal transaction and attracts heavy penalty and prosecution.
The Government then ensured the filing of the return to become mandatory for everyone and to quote PAN number for the business transactions. This was made mandatory to ensure that a trail was made and evidence was left by the person who conducted a transaction, where there could have been a possible Tax Evasion or probably the person was Tax Evader. In this way, the government attacks this ploy, by bringing new policies and strengthening the laws with stricter penalties, so this Operating below the Radar technique must end.
Lastly, the sections related to the penalties were not only very heavy but they were implemented in a very aggressive way. Along with this, the government had made e-surveillances, which tracks down data of tax evasion on a real-time basis.
With these measures taken by the governments, results were visible. As per the recently declared Figures by CBDT, the Compliance and Tax Collection has shown tremendous growth. An increase of 759,622 crores[4] was made from 2010 to 2019 in tax collection and the number of persons filing Income Tax return has also been increased by 30,171,427 from 2013 to 2019[5]. Within 6 years the number of Income Tax Return filled has been by 56.38% and also the rate of Tax Collection is increased by 33.23% from the past 10 years. This is a huge jump for the Indian economy. The e-surveillance and Data Collection that the Government is doing has been played a vital role in compliance with the Income Tax Return. Even though the government scheme under the Companies Act, 2013 has disqualified and delisted a lot of companies, yet the corporate return has been increased by 74.10% from 2013 to 2019[6]. The efforts are bearing results now. In between the one time major effort was taken by the government to ensure all the black money will come out in the economy, this was DEMONETIZATION. It was one of the major on slots of government for the attainment of Black Money, which consecutively reveals the tax evaders. Demonetization yields the result in 2018, it was a one-time effort. Many sectors of the economy are still not paying their taxes, the government was claiming that the GDP was rapidly growing but now the result is faded. The rate of filing the returns is increasing but for the coming years if the new return will not be added then the situation will be constant, neither increasing nor decreasing. And until then the new techniques of Tax Avoidance could come up and the rates might fall.
Author(s) Name: Ritika Saxena (Ramswaroop Memorial University, Lucknow)
Reference(s):
[1] Dr. Girish Ahuja, Tax Laws & practice (14th Edition, A.Y. 17-18) Page no. 521.
[2] https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1468-2230.1955.tb00295.x#:~:text=art%20of%20dodging%20tax%20without,be%20distinguished%20from%20tax%20evasion.
[3] Dr. Girish Ahuja, Tax Laws & practice (14th Edition, A.Y. 17-18) Page no. 521.
