Income Tax– The Income Tax Department has issued an advisory to employers in Telangana, Andhra Pradesh, and other major cities across India, warning them against their employees making false or suspicious claims for tax deductions and exemptions. This follows last year’s crackdown in Telangana and Andhra Pradesh, where several employees were caught manipulating their tax returns to lower their net tax liability.
According to chartered accountants and tax professionals, the tax department is urging employers to caution their staff against filing incorrect tax returns, which could attract scrutiny and legal repercussions.
Warnings on Claiming Excessive Deductions
Aarti Raote, Partner at Deloitte India, noted that the tax department has informed several companies in cities like Bangalore, Hyderabad, and Mumbai about instances where employees have claimed higher deductions in their tax returns than those reflected in their Form 16. “These claims may not necessarily be wrongful, but they are flagged by the tax department’s system as being higher than the numbers mentioned in Form 16. The electronic filing of tax returns has made it easier to identify these mismatches,” Raote explained.
The department has been sending out notifications over the past year, particularly as digital tax filing systems allow for quick and accurate comparison of declared income and deductions.
Employers Advised to Monitor Employee Claims
The advisory specifically highlights the responsibility of employers to ensure that their employees’ tax deductions and exemptions are legitimate and accurately reported. Mihir Tanna, Associate Director at S.K Patodia & Associates LLP, elaborated on the advisory, stating, “The communication from the tax department to employers mentions that it has observed some employees of the company making incorrect or suspicious tax deductions/exemptions.”
Employers are encouraged to communicate the risks of making false claims to their employees, which include potential penalties, interest charges, and legal action from the tax authorities. The advisory suggests that employers implement internal checks and balances to verify the accuracy of the deductions and exemptions claimed by their employees.
Crackdown on Tax Evasion
The tax department’s increased scrutiny is part of a broader effort to curb tax evasion and ensure compliance with tax laws. The department is using advanced data analytics and electronic filing systems to identify discrepancies and suspicious patterns in tax returns.
“The income tax department is actively using technology to flag mismatches and inconsistencies in tax returns. This is a clear message to taxpayers to be diligent and honest in their declarations,” Tanna added.
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