In a significant move to enforce accurate tax compliance, the Income Tax Department of India is intensifying its efforts to reconcile discrepancies between the tax deducted at source (TDS) by companies and the declarations made by employees in their annual Income Tax returns.
The department is employing a meticulous verification process, scrutinizing various aspects such as house rent allowance, medical insurance, home loan payments, and tax-saving investments under Section 80C. This enhanced scrutiny comes in the wake of numerous companies, especially in major cities like Mumbai and Delhi, receiving notices under Section 133C. This section, introduced in 2014-15, empowers authorities to seek information for verification purposes, requiring companies to confirm or correct the information provided.
These measures aim to identify cases where there are tax discrepancies, either due to companies deducting less TDS than required or employees making unreported investment declarations. This could potentially lead to incorrect refunds being claimed. The department is leveraging Section 133C for a detailed line-wise verification using technology to bridge the gap between reporting by companies and employees.
An interesting aspect of this scrutiny is the focus on both employers and employees. While employers are responsible for correctly computing and reporting TDS every quarter, there has been a traditional lack of close verification of employee declarations. This gap has led to the issuance of notices as an effective tool to identify erroneous claims, with applicable penalties for non-compliance.
The Income Tax department has also sent advisories to taxpayers where there is an apparent mismatch between disclosures in their Income Tax Return (ITR) and information received from reporting entities. This is not a blanket notice to all taxpayers but targets cases with clear mismatches. The aim is to provide taxpayers an opportunity to revise their returns or file them if not done previously. The deadline for revising or filing a belated return for the Assessment Year 2023-24, relating to income earned in 2022-23, was set for December 31, 2023.
Taxpayers are urged to respond to these communications promptly, as mismatches with Form 26AS or the Annual Information Statement (AIS) can lead to a notice from the Income Tax department. It’s crucial to cross-check the TDS credit claimed in the return with the amount reflected in Form 26AS before filing tax returns to avoid discrepancies.
In summary, this move by the Income Tax department represents a significant step towards ensuring accurate tax compliance and reducing fraudulent claims. Both employers and employees are advised to be diligent in their tax filings to avoid potential penalties and scrutiny.