According to news reports, the Income Tax Department in India recently sent notices to over 8,000 taxpayers suspected of tax evasion through disproportionate donations to charitable trusts. These taxpayers made donations that were out of proportion to their income and expenses, raising suspicions of tax evasion.
The IT department has been using data analytics to track the use of specific deductions under the old tax regime, specifically Sections 80G, 80GGC, and 80GGB, which allow taxpayers to deduct donations to charitable trusts and political parties. In this article, we will go over the specifics of the notices that were sent, the similarities discovered in the cases, and the consequences of this action.
IT Notice to 8,000 Taxpayers (FYs 2017-18 to 2020-21)
The Income Tax Department in India has issued notices to over 8,000 people, including salaried and self-employed individuals, as well as some businesses, who claimed a deduction for large donations to charitable trusts/NGOs. The tax authorities suspects that these taxpayers are evading taxes by concealing their income through donations to these organisations. According to reports, the donations shown by taxpayers in these cases do not match the income and expenditure of the respective assessees for the financial years 2017-18 to 2020-21. The IT department is also looking into independent tax experts who helped with these activities.
Common factors in all cases claiming large amounts of 80G Deductions
According to news reports, in most cases, the donation amount was carefully planned and claimed, and it exactly matched the amount required to lower the tax slab or obtain a full exemption, and it was paid in cash. Furthermore, an unusually high amount was paid to tax professionals, even by simple and straightforward salaried individuals, i.e. cases where no complications were involved and such hefty professional fee payment was unjustified.
IT Crackdown on Trusts/NGOs
The Income Tax Department is looking into charitable trusts that give taxpayers forged donation receipts. While no action has been taken against them thus far, if such misadventures are discovered and confirmed during an IT investigation, they may lose their tax-exempt status.
Contributions to certain funds and charitable organisations are tax-deductible under Section 80G of the Income Tax Act, which allows taxpayers to deduct charitable trusts and political parties from their income taxes. Data analytics is being used to track the use of specific deductions under the old tax regime, specifically Section 80G, 80GGC, and 80GGB. Separately, the Tax Administration is investigating donations to dormant political parties and has already issued several letters.
To increase transparency and ensure that the deduction under Section 80G claimed by taxpayers is true and correct, the government mandated that charitable trusts and institutions provide certain forms via Forms 10BD and 10BE on or before May 31, immediately following the financial year in which the donation is received. As a result, the deductions will be available only after verification of the donations from the aforementioned forms.
The Income Tax Department’s crackdown on tax evasion via disproportionate donations to charitable trusts is a step in the right direction towards stricter compliance and transparency. The department is making it more difficult for taxpayers to evade taxes with measures such as prohibiting cash donations in excess of Rs 2,000 and the use of data analytics. Charitable trusts and institutions must provide certain forms to ensure that taxpayers’ Section 80G deductions are true and correct. Unethical behaviour discovered among the trusts may result in loosing their tax-exempt status. Maintaining the integrity of the tax system is critical, and this action by the IT department is a step in the right direction.
Yes, good job no doubt. But what about officers from the Income tax deptt itself. Let them put up a notification on their website as to what action is taken on their staff who have amassed wealth beyond their means. Few years ago a commissioner from mumbai area was raided and so much cash was found that ultimately a number of counting machines were bought to count his wealth. what happened to this case?
Income tax department should answer how the PAN Card is issued to bogus trusts and parties. Why are individuals being asked and not the IT Department for issuing PAN cards to these entities or parties. People who donated for good sake – who and how will be identified.