Income Tax Department Uncovers HRA Fraud Through Unauthorized PAN Usage Identifies 10,000 Instances Exceeding Rs 10 Lakh Each; Employees to Face Consequences

Severe Penalties Await Those Found Guilty of Fabricating Deductions or Rebates. The news has been published in Times of India and full news is hereunder-

“The income tax department has detected a fraud involving unauthorised use of permanent account numbers (PAN) by individuals to claim house rent allowance when they were not even tenants. So far, at least 8,000-10,000 high value cases have been detected with amounts running into Rs 10 lakh or more.
The cases first came to light when authorities found alleged rent receipts of around Rs 1 crore by an individual.

When confronted, the individual whose PAN reflected the “rental income” denied any knowledge. Further probe revealed that the individual indeed did not receive the rent that was shown against his name.

The case prompted the income tax department to further investigate the matter and it turned out that there was rampant misuse of PANs by unscrupulous individuals to claim tax deduction from their employers. So much so that officials have now come across cases where employees of certain companies have used the same PAN to claim tax deduction.

Tax officials said the department is now going after those employees, who have made bogus claims to recover the tax. It is unclear if legal action is also planned against them. The case reflects another instance of PAN being misused without the holder actually knowing about it. In this case, what has complicated the matter is that currently TDS (tax deducted at source) is applicable only for monthly rent of over Rs 50,000 or annual payment in excess of Rs 6 lakh. So, a lot of employees have been misusing the benefit to avoid paying tax on rental income.
“Most of the financial transactions are linked to PAN. With use of latest technology and automated processes and data analytics, it is not very difficult for tax authorities to track fake claims. This may not only entail tax payments later but also will result in levy of penal interest, penalty and even lead to prosecution in extreme cases. Where rent is paid to the parent, the rent should be paid through cheque or by way of electronic transfer (and not through cash) to demonstrate the genuineness of the transaction and that parent too needs to report that rental income in his or her return,” said Kuldip Kumar, partner at Mainstay Tax Advisors.
Tax officials said the fault entirely lies with the employee and the employer cannot be held liable even if multiple individuals quote the same PAN for rent payment. “Employers are not expected to make a deep investigation, but the onus is also on them to have reasonable checks and balances, while obtaining the proof of rent paid to allow HRA exemption. In fact, in some of the cases, employers have their policy that where any employee is caught having submitted a fake claim for HRA or LTA etc, such employee may be terminated from employment,” said Kumar.

Souce:- Times of India

https://timesofindia.indiatimes.com/business/india-business/tax-department-detects-hra-fraud-with-illegal-usage-of-pans/articleshow/108885147.cms

Under Section 133(6) of the Income Tax Act, tax authorities have the authority to issue a notice to any person or entity to furnish information or documents relevant to a tax assessment or inquiry. This notice empowers tax officials to gather necessary information to verify the accuracy and completeness of the taxpayer’s financial records.

Section 133(6) in The Income- Tax Act, 1995–

(6) require any person, including a banking company or any officer thereof, to furnish information in relation to such points or matters, or to furnish statements of accounts and affairs verified in the manner specified by the Assessing Officer, the Deputy Commissioner (Appeals), the Deputy Commissioner or the Commissioner (Appeals), giving information in relation to such points or matters as, in the opinion of the Assessing Officer, the Deputy Commissioner (Appeals) the Deputy Commissioner of the Commissioner (Appeals) will be useful for, or relevant to, any inquiry or proceeding under this Act.

For failure to comply with notice u/s 133(6)

Section 133(6) notice is given to tax payer or related parties seeking certain details of transaction done during the year under consideration. Failure to comply with notice can ead penalty of Rs10,000 u/s 272A.

Key Points of Notice under Section 133(6):

1. Purpose: The notice is issued to gather specific information or documents that may be crucial for assessing the taxpayer’s tax liability or conducting an inquiry into their financial affairs.
2. Scope: It can cover a wide range of information, including financial statements, account books, bank statements, transaction records, agreements, contracts, and any other documents relevant to the tax assessment.
3. Timeline: Taxpayers are typically required to respond to the notice within a specified timeframe, usually within a few weeks from the date of receipt.

Response to Notice under Section 133(6):

1. Understanding the Requirements: Upon receiving the notice, the taxpayer should carefully review the requests outlined in the notice to understand the specific information or documents sought by the tax authorities.
2. Gathering Documents: The taxpayer should gather all the requested information or documents mentioned in the notice, ensuring that they are accurate, complete, and organized for submission.
3. Preparation of Response: It’s essential to prepare a clear and concise response addressing each request in the notice comprehensively. If any information or documents are not readily available, the taxpayer should provide a valid explanation for the delay or inability to furnish them.
4. Submission to Tax Authorities: The response, along with the relevant documents, should be submitted to the designated tax authority within the stipulated timeframe mentioned in the notice. It’s advisable to maintain copies of all documents submitted for future reference.

Importance of Compliance:

• Legal Obligation: Responding to the notice under Section 133(6) is a legal obligation, and failure to comply with the notice can result in penalties, fines, or further scrutiny by tax authorities.
• Facilitating Tax Assessment: By providing the requested information or documents in a timely and accurate manner, taxpayers facilitate the tax assessment process, ensuring transparency and compliance with tax laws.

If the notice leads to an adverse order by the Assessing Officer or CIT(A) and you need to understand your appellate options, including filing an ITAT appeal, you can find a practical guide here: ITAT Appeal Filing – Time Limit, Fees & Online Process.

Conclusion:

A notice under Section 133(6) of the Income Tax Act empowers tax authorities to gather essential information or documents relevant to tax assessment or inquiries. Taxpayers should respond promptly and diligently to such notices, providing the requested information or documents to ensure compliance with tax laws and facilitate the tax assessment process.

Under the Income Tax Act of India, various financial transactions are subject to reporting requirements to the Income Tax Department. These transactions, which exceed specified thresholds, are reported by the respective entities to the Income Tax Department, and the details of these transactions are compiled into the Annual Information Statement (AIS) for individual taxpayers. Here are some common transactions and their respective thresholds that are reported under the AIS:

1. Bank Transactions:

• Cash deposits or withdrawals aggregating to Rs. 10 lakh or more in a financial year in one or more savings account of a person maintained with the same bank.
• Payment made by any mode (other than cash) for credit card bills aggregating to Rs. 10 lakh or more in a financial year.
• Purchase of bank drafts or pay orders with cash aggregating to Rs. 10 lakh or more in a financial year.

1. Mutual Fund Transactions:

• Redemption of units of mutual fund for an amount exceeding Rs. 10 lakh.

1. Stock Transactions:

• Sale or purchase of shares of a company listed on a recognized stock exchange exceeding Rs. 10 lakh in value per transaction.

1. Property Transactions:

• Purchase or sale of immovable property valued at Rs. 30 lakh or more.
• Receipt of rent exceeding Rs. 2.40 lakh per annum.

1. Credit Card Transactions:

• Payment made by any mode (other than cash) for credit card bills aggregating to Rs. 10 lakh or more in a financial year.

1. Foreign Exchange Transactions:

• Purchase of foreign currency or traveler’s cheque exceeding Rs. 10 lakh or more in cash.

1. Fixed Deposit Transactions:

• Fixed deposit with banks or post office aggregating to Rs. 10 lakh or more.

1. Cash Transactions:

• Cash deposits aggregating to Rs. 10 lakh or more in a financial year in one or more saving account of a person maintained with the bank.
• Cash deposits aggregating to Rs. 50 lakh or more in a financial year in one or more accounts (other than current account and time deposit) maintained with the bank.

Reporting and Compliance:

• Annual Information Statement (AIS): The details of these high-value transactions are compiled into the Annual Information Statement (AIS) for individual taxpayers and are made available for download through the Income Tax Department’s e-filing portal.
• Verification and Compliance: Taxpayers are required to verify the accuracy and completeness of the high-value transactions reported in their AIS. Any discrepancies or omissions should be rectified promptly to ensure compliance with tax laws.
• Income Tax Return Filing: Taxpayers must accurately report all high-value transactions in their income tax returns and ensure compliance with tax laws. Failure to disclose these transactions may attract penalties or scrutiny by tax authorities.

The Annual Information Return (AIR) serves as a crucial tool for the Income Tax Department to track high-value financial transactions and ensure tax compliance among taxpayers. When significant discrepancies are identified between the information reported in the AIR and the income tax returns filed by taxpayers, the Income Tax Department may issue a notice to investigate and resolve the discrepancies. Taxpayers are required to respond to such notices promptly and provide the necessary clarification or information to address the discrepancies and ensure compliance with tax laws. It’s essential for taxpayers to accurately report their financial transactions and income to avoid potential penalties or scrutiny by tax authorities

Tax Savy Tips for #Equity Investors

Your Investment is a Short Term if a period of holding is up to 12 Month otherwise it will be treated as Long Term

Short Term Capital Gain is Taxable @ 15%

Long Term Capital Gain is exempt up to Rs.1 lakh after that taxable @ 10 % (No Indexation)

Long Term Capital Loss can be set off against Long Term Capital Gain only

Short Term or Long Term losses can be carried forward up to 8 years if you have filed ITR on or before the due date u/s 139(1)

💡Tips💡
1:Book Long Term Capital Gain up to Rs.1 lakh during the year as it was exempt from tax

2:If you have already booked a short term capital gain then to save taxes book short term capital losses and repurchase the shares on next day so that such short term losses can get set off against your taxable short term capital gains and no effect to your portfolio

3:If you have already booked a long term gain of more then 1 lakh then to save taxes book short term capital losses or long term capital losses and repurchase the shares on next day so that such short term/long term losses can get set off against your taxable long term capital gains and no effect to your portfolio.

Total 17 updates in the latest Income Tax Return (ITR) Forms for FY 2023-24! Here’s a detailed breakdown of the key changes:

1. Filing Deadlines: Taxpayers now have a new column in Forms ITR 3, 5 and 6 where they specify the deadline for filing returns.
2. Online Gaming Winnings Taxation: Schedule OS has been amended to include reporting of income from online gaming in form ITR 2, 3, 5 and 6.
3. Adjustment of Unabsorbed Depreciation: The new provisions allow for the adjustment of unabsorbed depreciation in Form ITR 3 and 5.
4. LEI Details: Legal Entity Identifier (LEI) disclosure is now mandatory for refunds exceeding INR 50 crores in Form ITR 2, 3, 5 and 6.
5. Political Party Contributions: Schedule 80GGC will require detailed disclosure of political party contributions in Form ITR 2, 3, 5 and 6.
6. Cash Receipts Reporting: A new column for cash receipts reporting has been added to claim an enhanced turnover limit in Form ITR 3, 4 and 5.
7. Start-up Deduction Details: New Schedules for claiming deductions under Sections 80-IAC and 80LA have been introduced in Form ITR 5 and 6.
8. Dividend Income Reporting: dividend income received from a unit in an International Financial Service Centre shall be taxed at a reduced tax rate of 10% instead of 20%. Schedule OS has been amended in new ITR forms to incorporate such change in Form ITR 2, 3, 5 and 6
9. ESOP Tax Benefits: Enhanced reporting requirements for Employee Stock Option Plans (ESOPs) needs disclosure of PAN and DPIIT Registration Numbers in Form ITR 2and 3.
10. EVC for Tax Audits: Individuals and HUFs under tax audits (ITR 3) can now verify returns using Electronic Verification Code (EVC). This simplifies the verification process and enhances ease of compliance.
11. Reasons for Tax Audit: Additional details are required from audited companies in Form ITR 3, 5 and 6 regarding the circumstances necessitating tax audits. This change enhances transparency and accountability in tax reporting.
12. Business Trust Sums Reporting: A new column under Schedule OS allows for reporting sums received by unitholders distributed by business trust to avoid non-taxation in Form ITR 2, 3 and 5.
13. Bank Account Disclosure: Taxpayers must now disclose all bank accounts held, except dormant accounts in Form ITR 2, 3 and 5.
14. CGAS Reporting: Detailed disclosure of deposits in the Capital Gains Accounts Scheme is now required in Form ITR 2, 3, 5 and 6.
15. Deduction under Section 80CCH: A new column is introduced to claim deductions under Section 80CCH for Agniveer Corpus Fund in Form ITR 1, 2, 3 and 4.
16. New Schedule 80U: Schedule 80U is added for claiming deductions for persons with disabilities, seeking detailed information in Form ITR 3.
17. Schedule 80DD: Similar to Schedule 80U, Schedule 80DD is added to claim deductions for maintenance and medical treatment of dependents with disabilities in Form ITR 2 and 3.

The GST Council concluded its discussion and held a press briefing at 3:30 P.M on October 7, 2023, to announce the following outcomes:

1. Regarding the formation of the GSTAT (Goods and Services Tax Appellate Tribunal), the Finance Minister stated that the council had previously made decisions. In this meeting, they recommended amending the law to set a maximum age limit of 70 years for the President and 67 years for members, with a minimum age requirement of 50 years. The age limit for members has been raised from 65 to 67, and for the President, it has been increased from 67 to 70 years. Additionally, advocates with up to 10 years of experience can now be appointed as judicial members of GSTAT.
2. Millet flour blended with other atta, comprising 70% millets under HS1901, will be subject to nil GST when sold unpackaged or in loose form, and 5% GST when pre-packaged or labeled.
3. Regarding the taxation of Extra Neutral Alcohol (ENA) used in alcoholic beverages, the Allahabad High Court ruled that states do not have the authority to tax ENA after the 101st Constitutional Amendment. The GST Council retains the right to tax ENA by law, but it has granted this right to states despite the court ruling.
4. The GST rate on molasses has been reduced from 28% to 5%, benefiting sugarcane farmers and lowering the cost of cattle feed.
5. Rectified spirit for industrial use will now have a separate HSN code, and an 18% tax will be applicable to ENA for industrial use.
6. To boost tourism, foreign-flagged/owned or foreign-going vessels will receive a conditional GST exemption of 5% if they operate in India’s coastal areas during the upcoming winter season.
7. An extension has been granted for the GST Amnesty Scheme, allowing appeals to be filed until January 31, 2024, with enhanced pre-deposit. An additional 2.5% pre-deposit will be charged for the extended period, payable from the electronic cash ledger.
8. Zari will be taxed at a 5% rate instead of 18% under GST.
9. Job work services related to the processing of barley into malt will attract a 5% GST rate for food and food products but 18% for the production of alcoholic beverages.
10. Exemptions have been provided to Government Authorities for services related to water supply, public health, sanitation, conservancy, solid waste management, slum improvement, and upgradation. This also applies to composite services involving up to 25% of the mentioned services. Clarification has been given regarding the eligibility of the District Mineral Foundation Trust (DMFT) for these exemptions.
11. All services provided by Indian Railways will be subject to forward charge, with Input Tax Credit (ITC) available for discharging liabilities.
12. The GST Rules will now specify a one-year time limit for the provisional attachment of property to avoid practical difficulties during property release from banks after one year.
13. The Finance Minister clarified that there were no discussions on GST rate rationalization or Input Tax Credit (ITC) recoveries.
14. Currently, 18 states have passed amendments to impose a 28% GST on gaming companies starting from October 1, 2023, along with corresponding GST Rules. Thirteen states are yet to pass such amendments.
15. The Revenue Secretary clarified that when a director provides a corporate guarantee to a company, it does not attract GST unless there is specific consideration. However, if a company provides a corporate guarantee to its subsidiary, 1% of the total guaranteed amount is considered as value and attracts an 18% GST.

Introduction:

Filing an accurate and complete income tax return is essential for individuals and businesses alike. It helps ensure compliance with tax laws and facilitates the smooth functioning of the taxation system. However, there may be instances when the tax authorities deem a filed return as defective. In such cases, the taxpayer receives a notice under Section 139(9) of the Income Tax Act, highlighting the deficiencies in the return and providing an opportunity to rectify them. In this article, we will delve into the concept of the Notice of Defective Return and shed light on its implications for taxpayers.

Understanding the Notice of Defective Return:

Section 139(9) of the Income Tax Act empowers the Assessing Officer (AO) to issue a notice to a taxpayer if the filed return is considered defective. This provision gives the AO the authority to point out errors, discrepancies, or omissions in the return and request the taxpayer to rectify them within a specified timeframe. The notice serves as a means to ensure accurate reporting and computation of income and prevents taxpayers from submitting incomplete or erroneous returns.

Reasons for Issuing a Notice:

The Assessing Officer may issue a Notice of Defective Return for various reasons. Some common grounds for such notices include:

1. Incomplete or incorrect information: If the return lacks necessary details, such as income from various sources, deductions claimed, or tax payments made, the AO may consider it defective. Similarly, errors in basic information like name, address, PAN, etc., can also render the return defective.
2. Non-compliance with the prescribed form: The income tax return form prescribed by the tax authorities must be used while filing the return. Failure to use the correct form or non-compliance with the specified format may lead to a notice of defect.
3. Mathematical errors: If the calculations in the return are incorrect or inconsistent, it may result in a defective return notice. This includes errors in computing income, deductions, tax liability, or any other relevant figures.
4. Non-attachment of mandatory documents: Certain supporting documents, such as Form 16, Form 26AS, TDS certificates, or proofs of deductions claimed, need to be submitted along with the return. Failing to attach these documents can result in a notice of defect.

Implications and Course of Action:

Upon receiving a Notice of Defective Return under Section 139(9), the taxpayer is granted a specified period to rectify the defects mentioned in the notice. This timeframe is typically 15 days from the date of receipt of the notice, although it can vary based on the discretion of the AO. It is crucial for the taxpayer to carefully review the notice, understand the deficiencies highlighted, and take appropriate steps to rectify them within the stipulated time.

In case the taxpayer fails to comply with the notice or rectify the defects within the given timeframe, the AO can treat the return as invalid. This may lead to the imposition of penalties and initiation of further proceedings, such as scrutiny assessments or audits. Therefore, it is in the taxpayer’s best interest to address the defects promptly and accurately.

Rectifying a Defective Return:

To rectify a defective return, the taxpayer must follow the instructions provided in the notice. This may involve providing additional information, correcting errors in calculations, attaching necessary documents, or making any other amendments required to bring the return in line with the prescribed format. Once the necessary corrections are made, the taxpayer should resubmit the rectified return to the tax department.

Conclusion:

The Notice of Defective Return under Section 139(9) of the Income Tax Act serves as a mechanism to ensure accurate reporting and compliance with tax laws. It gives the taxpayer an opportunity to rectify any errors, omissions, or discrepancies in the filed return. Timely response and rectification of the defects are crucial to avoid penalties and further scrutiny from tax authorities. Therefore, taxpayers should be diligent in preparing and reviewing their income tax returns to minimize the chances of receiving a notice of defect and ensure smooth tax compliance.

Income tax plays a crucial role in a country’s revenue generation and is an important aspect of financial planning for individuals. In recent years, the Indian income tax system has undergone significant changes, with the introduction of the new tax regime. This article aims to provide an overview of the income tax structure under the old and new regimes, compare the tax slabs, and discuss factors to consider when determining which regime is better suited for an individual taxpayer.

The Old Tax Regime: Under the old tax regime, the income tax structure consists of multiple tax slabs with progressive rates. The tax rates for individual taxpayers for the financial year 2021-22 are as follows:

• Up to INR 2.5 lakh: Nil
• INR 2.5 lakh to INR 5 lakh: 5%
• INR 5 lakh to INR 10 lakh: 20%
• Above INR 10 lakh: 30%

Additionally, a cess of 4% called the Health and Education Cess is levied on the total tax liability. Taxpayers can avail various deductions and exemptions under different sections of the Income Tax Act to reduce their taxable income and lower their tax liability.

The New Tax Regime: The new tax regime, introduced in the Union Budget 2020, offers reduced tax rates with fewer deductions and exemptions. It aims to simplify the income tax structure and provide taxpayers with the option to choose between the old and new regimes based on their individual circumstances. The tax rates for individual taxpayers for the financial year 2021-22 under the new regime are as follows:

• Up to INR 2.5 lakh: Nil
• INR 2.5 lakh to INR 5 lakh: 5%
• INR 5 lakh to INR 7.5 lakh: 10%
• INR 7.5 lakh to INR 10 lakh: 15%
• INR 10 lakh to INR 12.5 lakh: 20%
• INR 12.5 lakh to INR 15 lakh: 25%
• Above INR 15 lakh: 30%

It is important to note that under the new regime, taxpayers cannot claim various deductions and exemptions, including the standard deduction, house rent allowance (HRA), deductions under Section 80C, 80D, etc.

Determining the Better Option: Deciding which tax regime is better for an individual depends on several factors, including the taxpayer’s income, age, investments, and financial goals. Here are some key considerations:

1. Income Level: For individuals with lower income levels and limited investments, the new tax regime may be beneficial, as it offers lower tax rates without the need to claim deductions. However, individuals with higher incomes who can avail substantial deductions under the old regime may find it more advantageous.
2. Deductions and Exemptions: Under the old regime, taxpayers can claim deductions and exemptions, such as those available under Section 80C for investments in instruments like provident fund, National Savings Certificate, etc. If a taxpayer has significant deductions that substantially reduce their taxable income, the old regime might be more beneficial.
3. Investment Preferences: Individuals with specific investment preferences may find the old regime more advantageous. For example, taxpayers who invest in life insurance policies, health insurance, or have home loan interest payments can claim deductions under the old regime, reducing their tax liability.
4. Simplicity: The new tax regime offers a simpler structure with lower tax rates and eliminates the need to track and claim various deductions. For individuals who prefer simplicity and do not have significant deductions, the new regime

Conclusion:

Choosing between the old and new income tax regimes depends on various factors and requires a careful assessment of one’s income, investments, and financial goals. While the new regime offers lower tax rates, it comes with reduced deductions and exemptions. The old regime provides the benefit of claiming deductions but involves a more complex structure. It is advisable for taxpayers to consult with tax professionals, such as chartered accountants or tax advisors, to analyze their specific circumstances and make an informed decision that optimizes their tax liability and aligns with their financial objectives.