The crackdown continues : Income Tax Department unearths Rs 3,200 crores TDS scam

The Income Tax department has unearthed a Rs 3,200 crore TDS scam. Irregularities were found in investigations pertaining to the period between April 2017 to March 2018 and several individuals and companies are under the scanner.

According to reports, a total of 447 companies deducted TDS (Tax deducted at source) from their employees but did not deposit it with the I-T and diverted it to help their own business interests. The I-T department has already started prosecution against these companies and some warrants have already been issued. The prosecution is carried out under the section 276 B of the Income Tax Act and its punishment includes rigorous imprisonment from a minimum of three months to seven years. The I-T department is also considering including IPC sections in the charges as the act amounts to cheating, duping employees and criminal breach of trust. One of the offenders, a prominent builder with political connections allegedly diverted 100 crores from employees to further his business. Other offenders in the case include movie production houses, start-ups and infrastructure development companies.

Companies are legally obliged under the Income Tax Act 1961 to deduct TDS (Tax Deducted at Source) from the payment given to employees and deposit the amount with the government. The Central Board of Direct Taxes manages it and companies are required to file quarterly returns to the CBDT. In this case, the companies have not deposited the TDS amounts they deducted. The process is easy and can be done through e-payment. If the companies do not deposit the TDS with the government the employee’s tax returns show a mismatch on the I-T website. In 2016, the central government had launched an SMS alert system that alerts the taxpayer about any TDS mismatch. The purpose of the TDS system was to make direct tax collections easier and that employees do not have to worry about payments to the government. The firms involved in this case have tried to cheat the system and employees both by deducting the TDS amounts and not depositing it with the central government.

According to reports, the I-T has already initiated the recovery process. Bank accounts of the individuals and companies involved are being attached and movable and immovable assets are being seized. Some of them had apologised and promised to pay the amount soon while others are citing financial difficulties due to market conditions. The percentage of TDS diverted to working capital also varies.

I-T officials have stated that at present, it is extremely difficult to cheat the system because digitalisation has made all transactions transparent and traceable for the government.

The Income Tax Department and the Enforcement Directorate have been cleaning up the financial system at a breakneck speed recently. The ED has been on an overdrive seizing properties and gems to recover the financial fraud perpetrated by Nirav Modi. Recently. the CBI had cracked down on Rotomac promotor too. ED was also set to sell unpledged shares of Vijay Mallya that was all set to fetch 4000 crores. The IT department too has been on an overdrive to clean the financial system and crackdown on black money.