Tax evasion India is something that keeps cropping up in conversations, debates, and economic analyses. India, like many other global countries, has been bearing the brunt of serious tax evasion for decades now. As per a November, 2020 report by the State of Tax Justice, the country was losing in excess of $10.3 billion or approximately Rs. 75,000 crore in annual taxes at the time due to private evasion and global corporate tax abuse.
This report also mentioned how 0.41% of the GDP was lost in taxes annually due to these reasons at the time. $10 billion of this tally was accounted for by MNCs and their tax abuse, while more than $200 million was lost due to private tax evasion. Now consider the social effect of the same at the time- the loss equated to 44.70% and 10.68% of the budget for health and education while equaling the annual salaries of more than 4.23 million nurses! That is how damaging tax evasion is for the Indian economy. Here is an extensive overview of the same in this article.
A Deeper Look at Tax Evasion in India
Tax evasion India means any attempt to intentionally avoid tax payments/liabilities through attempts like willful evasion, income misreporting or concealment, and financial fraud.
For instance, suppose a company claims depreciation on a car used by its chief executive for his personal requirements. This is tax evasion as per Section 32 of the Income Tax Act of 1961 and is not permissible. Another example could be how a company sets up appliances at the homes of its senior executives but puts the costs in the quality control category to get more deductions. It is evasion since the appliances will be depreciable at 10%, while the rate for equipment and machinery in the quality control category is 15%. Hence, the depreciation amount goes up and profits are illegally lower in this scenario. To sum it up, tax evasion means any fraudulent attempt to avoid paying after the tax liabilities arise or efforts to pay much lower than the actual liability.
Methods to Evade Taxes in India
There are several methods used by fraudulent individuals and companies to evade taxes in the country. Some of them include the following:
- Non-filing/late filing of ITR (penalties up to Rs. 5,000)
- Hiding income for tax evasion (penalties of 100-300% as per Section 271 (C))
- Not auditing accounts (penalties of 0.5% of total sales/gross receipt turnover or Rs. 1.5 lakh, whichever is more).
- Not presenting the accountant’s report as per Section 92E (penalties up to Rs. 1 lakh or higher).
- Not adhering to TDS regulations (penalties of Rs. 10,000 or Rs. 200 per day, depending on the violation).
- Non-filing of TCS/TDS returns and incorrect information (penalties between Rs. 10,000 and Rs. 1 lakh).
- Willful tax evasion (a fine and imprisonment between six months and seven years if the amount crosses Rs. 25 lakh).
- Incorrect PAN/not providing PAN (penalties of Rs. 10,000 for the first scenario and higher TDS of 20% in case of the second).
Concluding Notes
As can be seen, tax evasion is a serious violation of the country’s taxation rules and regulations. It leads to the creation of black money, hinders Government spending and budgets, and also creates a tax gap that is hard to fill. This is where the Government and income tax authorities have taken several steps to address the problem. One hopes it bears fruit in the times to come.
