Income Tax Dept. intensifies efforts to recover Rs.7.7 Trillion Tax Arrears

The Income Tax Department has increased its collection efforts in order to recover roughly 40% of the outstanding tax demand, or Rs 7.7 trillion, in the remaining months of the current financial year (FY23).

This is in accordance with the instructions given by the Central Board of Direct Taxes at its meeting on December 21.

According to a senior official, senior tax officials were instructed at that meeting to “optimise” the resolution of open cases involving large sums of money.

In order to meet the target for FY23 and improve the overall revenue position, the CBDT also instructed them to concentrate on cash collection from arrears and current-year demand, the official continued.

The FY23 recovery goal of Rs 7.7 trillion includes Rs 2.05 trillion in cash collectibles. The action is viewed as an effort to maximise revenue before the Union Budget.

This occurs at a time when the Center, despite sizable expenditure commitments, is determined to meet the FY23 financial deficit target of 6.4% of GDP. Less than 10% of tax arrears have been recovered annually based on past trends.

Due to litigation, company liquidations, untraceable taxpayers, and an inconsistency in tax deduction at source, tax arrears are mounting. Courts or tribunals have also stayed some cases.

The CBDT reviewed the challenges with tax recoveries during the December meeting and finalised a road map to reduce the backlog in a time-bound manner.

Another tax official who was aware of the order said, “Tax sleuths have been asked to carry out recovery surveys in a large number of suitable cases after due diligence.” The official added that recovery notices would also be sent to a number of organisations and people across the nation.

Tax Arrears

From Rs 15 trillion in April 2021 to over Rs 19 trillion in April 2022, a rise of about 25%, was seen in the total arrear demands.

According to reports, the CBDT expressed concern about the amount of revenue locked up in appeals and the increase in litigation, and instructed staff to focus their efforts on the issue as much as possible in the months left in FY23.

The parliamentary standing committee on finance, which is chaired by a prominent BJP member named Jayant Sinha, called attention to the problem of tax arrears in both direct and indirect tax matters and recommended that administrative and legislative measures be taken to reduce the backlog.

The standing committee also advised the department to use the initiative to mediate and settle disputes as often as possible in order to decrease the number of pending disputes.

Examining Pending Demand

In order to address each situation, the CBDT recommended that a weighting of 5% be applied to demands where assessees could not be located.

In the statement, it was stated that “efforts may be made for tracing the assessees through use of data and enquiries through banks, intelligence agencies, social media searches on the internet for public databases like electoral rolls, etc.”

Additionally, brought-forward entries of arrear demands must have at least a 15% reduction in corporate and international taxation charges and a 25% reduction in non-corporate charges.

It has also examined procedures like issuance of appeal effect orders, reconciliation of arrear demands, modified notices for insolvency matters, and rectification orders.

During the meeting, the CBDT also reviewed the jurisdiction-specific target allocation for reducing arrears, where Mumbai and Delhi requested to recover dues of Rs 2.3 trillion and Rs 1.4 trillion, respectively.