Income-Tax Department Keeps Hawk-Eye on TDS and ITR Mismatch

The Income Tax (I-T) department is closely scrutinising differences in tax deducted at source (TDS) by companies and employees’ declarations in income tax returns (ITRs). 

This involves a detailed reconciliation of figures in various categories such as house rent allowance (HRA), medical insurance, home loan expenses, and Section 80C investments of the Income-Tax Act (ITA). 1961.

In December 2023, several companies in metros, such as Mumbai and Delhi, received notices under Section 133C of the ITA, introduced in the financial year (FY) 2014-15. Under this provision, the custodians are granted the authority to request information for verification purposes. These companies need to then either ‘confirm the information’ or ‘furnish a correction statement.’

This smart technology aids in keeping a tab on cases where tax has been evaded. In these cases, either the companies have deducted less TDS, or the employees have wrongly claimed refund through the fraudulent declaration of investment documents.

The I-T department’s objective is to keep a check on cases where tax has escaped, either due to companies deducting less TDS than required or employees including undisclosed investment declarations when finalising their ITRs to claim refunds.

Essentially, it is every employer’s legal responsibility to compute and report TDS every quarter accurately. 

Generally, companies have not extensively verified employee declarations. In a few cases, employees may fail to submit the required documents promptly. At the same time, service providers, quite often software companies engaged for outsourced payroll tasks, may fail to carry out adequate validation.

Under scenarios wherein employees submit dubious claims endorsed by companies, discrepancies may not be noticed immediately in the tax office system. However, any disparity between the two sets of information would be suitably detected. A case that draws the attention of the tax office, is likely to put under complete scrutiny of the records of all employees.

The gross direct tax collections for the financial year 2024  have recorded a growth of  17%. Before adjusting refunds, the gross collection of direct taxes for FY 2023-24 stood at more than Rs 15.95 lakh crore compared to 13.63 lakh crore in the corresponding period of 2022-23. The net direct tax collections have experienced over 20.66% growth in the current fiscal.

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