500,000 Taxpayers receive IT department warning for Low Advance Tax

The income tax department has informed an estimated 500,000 people about “zero” and “lower advance tax payment” between April and August of this year.

After evaluating “significant transaction” data from the previous financial year and the first quarter of the current financial year, the department delivered these notifications.

The department’s investigation identified over 2.5 million cases in which taxpayers with large income and high-value purchases made no or few advance tax payments in FY23.

An official with knowledge of the issue said that in numerous cases, the advance tax payment in the first quarter (April-June) of the current financial year revealed that taxpayers paid fewer taxes as compared to their high-value spends, indicating a mismatch.

The action comes ahead of the September 15 deadline for the second installment of advance tax. According to sources, the number of taxpayers avoiding advance tax payment has grown dramatically in the last three to four years, and such a programme will help dissuade noncompliance by assessees.

Advance taxes are paid in four installments: June, September, December, and March. These payments are based on taxpayers’ estimates of future income and offer an indication of potential tax collection in the months ahead.

Typically 15 per cent of the tax liability is paid in June, 45 per cent by September, 75 per cent by December, and a full payment by March.

With gross tax revenue between April and July up only 2.8 per cent year-on-year and net revenue witnessing a contraction of nearly 13 per cent, the government is looking at plugging leakages in direct taxes.

Assessees who had large revenue in FY23 in areas such as pharmaceuticals, health care, and chemicals got warning in some cases, but their predicted income was significantly smaller, and even payment made in the first instalment was less.

Assessees who made big earnings in the stock market the previous year and purchased high-value immovable assets and cars are also receiving intimation, showing a possibly unbalanced income-to-investment ratio.

This might be due to a variety of variables, including a weaker rupee, inflation, high interest expenses, and overall high costs, which result in lower-than-expected income for the financial year.

The Income Tax Authorities are on an information-gathering mission based on PAN, either through internal data processing channels (defined financial transactions/annual information statement/tax information statement) or by ensuring that taxpayers do not under-report their income in tax filing.

Significant transactions are typically those involving the purchase of goods worth lakhs of rupees, a stated turnover of 10 crore, the purchase or sale of immovable property, cash withdrawals from banks/post offices exceeding Rs 20 lakh, credit card payments exceeding Rs 10 lakh, and so on.