Arjuna (Fictional Character): Krishna, on 26th January, India celebrates its Republic Day. Over the past few months GST and Income Tax departments have been sending notices to the taxpayers to increase the collection of Revenue. Please tell what are the weapons that department is using to take the Taxpayer’s parade?
Krishna (Fictional Character): Arjuna, On every republic day India’s unity and strength is demonstrated by the Army, Navy and Air Force in the grand Parade along with the exhibition of various diverse states of India. The army shows their different weapons to showcase their strength. In this republic day, The Tax departments are using their weapons and they also have upgraded their weapons through which they shall be taking Taxpayer’s Parade.
Arjuna: Krishna, How will Income Tax department take Taxpayer’s Parade and what are the weapons which the Income Tax department have?
Krishna: Arjuna, The Income Tax department have the following weapons:
Section 132 of the Income Tax Act gives power to Income Tax Department for conducting Search and Seizure. This weapon of Income tax makes the most damage to the taxpayers. Under Search and Seizure, the missile can harm the taxpayer in the past for 6 years, in other case if the Concealed Income of the taxpayer is above Rs 50 Lakhs, then the impact of the missile will harm for 10 years in the past. Now due to low collection tax in FY 19-20, this weapon will be used at large. Here tax evaders should beware of this.
Section 133A of the Income Tax Act gives power to Income Tax Department for conducting Survey. The survey bomb weapon does not have any impact at the start, but if the Income Tax department finds a clue of any concealment of Income, then this bomb makes a huge impact on the taxpayer.
Section 133(2A) of the Income Tax Act gives power to TDS Department for conducting Survey. TDS has to be deducted and the TDS return has to be filed monthly. If any taxpayer does not file and pays TDS, the TDS department will make a survey and send notice to the taxpayer for payment if default of TDS.
As per Section 207 of Income Tax Act, Every Taxpayer is required to pay advance tax on the estimated Income which will be earned by him during the financial year. Advance tax has to be paid by the taxpayer on quarterly basis. If any taxpayer has higher income and fails to pay advance tax, the Income tax department will immediately send notice for non-payment of advance tax for collection of revenue.
This is the kind of weapon where Income Tax sends in scrutiny notice under section 143(2) of the Income Tax Act just to find out the potential of the assesse through which the Income Tax department will collect revenue i.e if during the scrutiny assessment the Income tax department finds the reply of the assesse is not satisfactory, department takes further action.
Arjuna: Krishna, How will GST department take Taxpayer’s Parade and what are the weapons which the GST department have?
Krishna: Arjuna, GST department in the recent months have come up with the new weapon of collection of revenue which is Rule 36(4), Rule 138 E and Section 16(4). The main purpose of this weapon is to block the ITC which is available to the taxpayers.
Through this weapon, the taxpayers position is like this “ Even if we file return- Aage kua, peeche Khai”
This weapon does damage the following way-
1. Rule 36(4) of CGST Rule
If the taxpayer has filed his return on a timely basis, the department disallows his ITC as per Rule 36(4) stating the reason-
a. ITC as per 2A is less than the ITC claimed in the return GSTR-3B, hence the ITC is disallowed.
b. If the ITC availed is more than 10% of the ITC as appearing as per GSTR-2A, the ITC is disallowed.
2. Section 16(4) of CGST Act
If the taxpayer has not filed his return before the due date, the department disallows his ITC as per Section 16(4) stating the reason that the return has not been filed within due date.
3. Blocking of E-way bill:
Rule 138 E of CGST/SGST rules provides that if the taxpayer does not file 2 or more consecutive GSTR 3B Return on GST Portal, his E-way bill generation facility will get blocked. The GSTINs of such blocked taxpayers cannot be used to generate the e-way bills either as Consignor or Consignee.
Once the Return is filed on GST Portal, the blocking status is removed by the system, next day.
Arjuna: Krishna, what lesson should one learn from this?
Krishna: Arjuna, The economy of India is at slowdown. There is downfall in the revenue collection of Tax department, infact this year is the smallest collection of tax revenue in the past 20 years. Thus the tax department are trying its best to increase the tax collection from the taxpayers but the weapons used by the department are causing genuine hardship to the taxpayer. The taxpayer must be careful during this phase.