Tighter scrutiny after demonetisation led to rise in PAN registrations, ITR filings
Data analysis of information collected after demonetisation has led to higher surveillance and more effective crackdown on black money, says a tax dept official
New Delhi: Heightened surveillance and a crackdown on black money has led to a three-fold increase in PAN (permanent account number) registrations, an 18% rise in income tax returns as well as a significant increase in the number of properties seized by the tax department to 475.
“This is the effect of demonetisation and operation clean money launched in January. Data analysis of information collected during the months after demonetisation has led to higher surveillance and a more effective crackdown on black money,” said a top official in the tax department who asked not to be named.
The department aims to bring large tax evaders to account and gently persuade those making minor violations to comply with the rules.
The official’s comments come days before the first anniversary of last year’s invalidation of high-denomination currency notes on 8 November.
With almost all the money in circulation before the exercise—around 86% of this was in the form of invalidated notes—coming back to the banking system, the tax department has embarked on an exercise to follow the money and track down defaulters.
The Benami Transactions (Prohibition) Act was notified for implementation on 1 November last year. Since then, show-cause notices have been issued in 520 cases. Benami properties are those that are held by an owner through proxies. The government is celebrating 8 November as Anti-Black Money Day.
The official said that out of 1.8 million of questionable cash deposits made after demonetisation, specific cases of suspected tax evasion and other non-compliance have been identified for scrutiny.
These include about 22,000 cases of “erratic behaviour” of people who have either filed returns for the first time or have revised their returns for financial year 2015-16 (filed in 2016-17) to justify their cash deposits after the invalidation of high-value bank notes.
Of the 1.8 million deposits, around 200,000 were deposits of more than Rs50 lakh in bank accounts in the days following demonetisation; 70,000 of these are by individuals who have not filed their tax returns yet. The official said notices will be issued to them after 7 November—the last date for filing returns with audit reports.
The official added that while questionnaires were sent to all 1.8 million, only 1.2 million have responded thus far.
The tax department is in the process of writing to the 600,000 individuals that have not responded. If they fail to respond, action such as searches and surveys may be required, the official said.
The tax department, this person pointed out, will also try and match the information in the explanations provided with that in tax returns and also with data sourced from third parties such as banks. The department has two years to complete the scrutiny and assessment from the year in which the return is filed.
“The priority is to ensure compliance by those who pose large risk of revenue leakage to the exchequer,” said the official.
An expert welcomed data-based investigations.
“Tax compliance is definitely improving as the data collected by the government after demonetisation acts as a deterrent. The safeguard needed here is to ensure that to the extent possible, this vast data is used carefully and does not result in enquiries that are avoidable,” said Rahul Garg, partner, PwC India, an accounting firm.
In a statement issued in August, the tax department said that tax searches increased 158% since November 2016, resulting in the doubling of black money seized to Rs1,469 crore from Rs712 crore in the year-ago period.
Official data for the past 10 years show a 154% increase in tax raids under the Modi government in 2016-17 compared to 2006-07, leading to an almost four-fold increase in black money recovery.
The biggest increase in admission of undisclosed income came in 2016-17 with tax payers reporting undisclosed income of Rs15,496 crore, a 38% jump from the previous year’s Rs11,226 crore.
A second official, who also spoke on the condition of anonymity, said that the impact of demonetisation can be seen in the surge in PAN registrations every month.
From around 2.7 million registrations in November 2016, the number went up to 9.6 million in April 2017. In the past three months, an average of 6.6 million people have signed up for a PAN every month.
“The number of tax returns filed for assessment year 2016-17 has also gone up 55.4 million, an increase of close to 18% (from the previous assessment year),” added the second officer mentioned above.
To be sure, this number is based on the first deadline for filing tax, and the real impact can only be gauged by early 2018.
Another area in which the tax department has made progress in the past year is benami properties.
It has attached 475 properties, worth over Rs1,600 crore, since the Benami Transactions (Prohibition) Act was notified for implementation on 1 November 2016.
Data available from the finance ministry shows that the maximum benami properties were seized in Gujarat, followed by Tamil Nadu, Rajasthan, Mumbai and Bhopal. These numbers are significant.
The Benami Act was first notified in 1988, but there wasn’t a single case where property was attached till the act was strengthened last November.
The creation of separate teams to dredge-out benami properties has led to better enforcement of the Act, said senior tax officials. These teams are called benami prohibition units (BPU) and there are 24 such teams across the country. Each team has at least five members.