Provide for certification / verification of all claims of deductions U/s. 80C, 80D, 24(b): ICAI

Issue/Justification

There are classes of persons who are filing income tax returns but are not declaring their income properly. Either the income is suppressed or various deductions are being claimed which are not legally permissible. With the increase in the work of the Department it is not practicable to scrutinise each and every return. Taking into consideration this aspect the person filing the return takes a calculated risk. Further, basic deductions provided by the Act like section 80C (Rs. 1,50,000), section 80D (25,000/30,000), section 24(b) (Rs. 2,00,000) being claimed by the individuals and HUFs, in large numbers, have huge revenue impact. To check on the admissibility of the claim for deduction, no proof of investment is called for by the  assessee. Today as per e-filing website of the department, there are 1.54 crore assessees who have filed return for ITR1,2,3 ,4 and 4S online for the FY 2017-18 and are thus expected to have an income of Rs. 5,00,000 or more. Considering the slab rate of 10%, the minimum revenue impact is 3,80,000*10.3%*1.54 crore is approximately Rs. 60275 crores. In case the applicable rate of tax is 20.6%, the revenue impact is approx. Rs. 120551 crores. In case the applicable rate of tax is 30.9%, the maximum revenue impact is Rs. 180826 crores. To address this, it is important that all the returns filed are thoroughly checked and cross verified with the information collected through AIR/SFT and other sources by the Department. This process is entirely different from the scrutiny process. In this verification, not only the arithmetical accuracy but the admissibility of the claim regarding the expenditure incurred, income earned or investment made on the basis of the evidence collected from various sources will also be verified. Since this work is voluminous, the same will also be required to be out-sourced preferably to the professionals understanding the law better and who are in a position to identify the grey areas. Although the chartered accountants, through whom majority of the returns are filed, ensure the correctness of the claim, the law does not recognises the same. Thus, the chartered accountant is questioned by the assessee, when documents are asked for. In the interest of the revenue, it is imperative to have a certification of claims of  deductions under section 80C, 80D, 24(b) and the like. This process once started will ensure better voluntary compliance as every taxpayer filing the return would be aware that the return being filed would be subject to a verification process and he cannot afford to take the liberty of making adjustments which are legally impermissible.

Suggestion

Since non-verification of admissibility of basic deductions provided in sections 80C, 80D and 24(b) have huge revenue impact, it is imperative to have a certification /verifications of all claims of deductions under section 80C, 80D, 24(b) and the like. In this verification, not only the arithmetical accuracy but the admissibility of the claim regarding the expenditure incurred, income earned or investment made on the basis of the evidence collected from various sources will also be verified. Since this work is voluminous, the same will also be required to be  outsourced preferably to the professionals understanding the law better and who are in a position to identify the grey areas.

(SUGGESTION TO IMPROVE TAX COLLECTION)

Source-  ICAI Pre-Budget Memorandum–2018 (Direct Taxes and International Tax)