Income Tax News: IT Dept on High Alert! Identifying Discrepancies in TDS Claims by Employers and Employees, Details

Income Tax News: The department of Income Tax (I-T) is employing a meticulous approach to identify any disparities between the tax deducted at source (TDS) that businesses pay and the statements made by their employees on their yearly I-T returns. The two sets of numbers are being reconciled line-by-line under various headings, such as medical insurance, home loan repayment obligations, tax-saving investments under 80c, and housing rent allowance.

Notices under Section 133C Issued to Companies

Several companies in Delhi, Mumbai, and other major cities received notices under Section 133C, which was implemented in 2014–15 and allows authorities to request information to confirm details, around the beginning of December. According to two people with knowledge of the exercise, the companies are being asked to "confirm the information" or "furnish a correction statement." ET was made aware of this.

Goal of the Income Tax Department's Investigation

The department's goal is to identify instances in which tax has escaped due to either the employer withholding less TDS than required or employees requesting refunds through additional investment declarations that were not declared at the beginning of the year but were added when completing the ITRs. “The section 133C (introduced in 2014-15) has been sparingly used so far. But recently many companies have received notices under this section. This would pave the way for a line-wise verification. It’s a smart use of technology by the department with the system making such granular level verification of the reportings by both sides — the deductors in their withholding tax returns as well as the taxpayers in their ITRs. The department is probably well aware of the limitations — such an exercise is not feasible manually for covering a large number of taxpayers. So, a system-related verification is being done to identify the gaps,” one of the expert said.

Employee List in Annexure to Notices

An employee list is provided in an annexure to the most recent round of notices. Garg asserts that it's critical that only appropriate cases be chosen for examination, either by the organisation or its personnel. “This could help in a more cautious approach towards withholding tax compliances with right validations at the level of employers (the deductors), right claims by taxpayers, increase in tax collection, and widening of tax base through a fair selection of the old and new tax regime for individuals,” he said.

Legal Requirement for Accurate TDS Reporting

Employers are required by law to accurately calculate and report the TDS of all new hires on a quarterly basis. However, historically, businesses have not placed much emphasis on closely examining the statements made by workers; in certain instances, workers might not turn in the necessary paperwork on time; additionally, inadequate validation is carried out by service providers—many of which are software firms—to whom businesses generally contract out the payroll work.

Concealed Gaps in the Tax Office System

It's interesting to note that a gap in the tax office system won't be obvious if employees submit false claims and their employers support them. However, any discrepancy between the two sets of data would be apparent right away. But, in the event that the tax office takes up a case, it is likely that all employee records will be examined.

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