New Delhi: The tax department has discovered a new ally in its war against potential tax evaders: the Registrar of Companies (RoC).
To build a more comprehensive profile of Indian taxpayers and improve tax payment compliance, the finance ministry has linked its income-tax database with newly revamped data being compiled by RoC through mandatory e-filings from companies.
The latest tax department initiative is part of an ongoing pilot project in the Capital, where the finance ministry is working on a prototype to build what they call a “360 degree” profile of a taxpayer.
The inclusion of RoC’s database will now help tax officials obtain information on companies as well as their directors, promoters and high-salary employees. This additional data will add to other parameters, such as investments in mutual funds and stocks as well as bank statements linked to individual permanent account numbers (PAN).
The income-tax (I-T) department can also use individual directors identification number (DIN), which is issued by the ministry of corporate affairs, and is somewhat similar to a PAN, issued by the I-T department. A DIN is a unique number issued to an individual who is a company’s director.
“Effective 1 July, every director has to obtain the permanent DIN, which is a more effective way to establish their identities and their enrolment with different companies,” said an official at RoC, which is under the administrative purview of the ministry of corporate affairs.
Companies are required to file with RoC and disclose profit-linked remuneration, managing directors who earn salaries from more than one company within the same group, and names of all employees who earn in excess of Rs24 lakh per annum.
The pilot project, in operation from January, will be extended to other major Indian cities after the ministry addresses issues related to integrating these various sources of information, said a finance ministry official who didn’t want his name mentioned. The pilot project has already helped identify tax evasions worth several crores, he claimed. Indeed, some of the buoyancy in India’s direct tax collections in the last few years has stemmed from tighter scrutiny of various disparate records available to the finance ministry.
While the arrangement with RoC has not been institutionalized, officials in the ministry of corporate affairs say sharing of inter-departmental data will help the government plug loopholes. In fact, RoC’s data “is in the public domain. The finance ministry need not make any formal request to the ministry of corporate affairs to obtain data,” notes one senior official.
The finance ministry official said that while the tax authorities have always used such company data, which can be publicly accessed through RoC’s website, a lack of enforcement by the ministry of corporate affairs meant the finance ministry often did not have all the details of the companies’ income. RoC requires all registered firms to file a variety of financial documents, including shareholding pattern as well as the promoters’ names. However, not all firms filed all these documents, until the ministry stepped up scrutiny and introduced an e-filing system. “Now, these companies are forced to file their income statements and we are able to compare information filed with RoC against our existing database,” the finance ministry official said.
The finance ministry has been able to build more complete individual profiles, which also include details of immediate family members of the taxpayer as well as their income streams, giving a family income picture, the same finance ministry official said.
“For the last few years, the revenue service has been collecting information from various sources, including car dealerships and consumer durables sales. What they require is analysis of this information. Once they put the right filters, scrutiny can increase heavily,” said Amarjeet Singh, a partner with BSR & Co., an India practice of consulting company KPMG.