The Income Tax Department is all set to crack down on high net worth individuals (HNIs) who underpay their taxes. This comes after the department found that the cut in the highest tax rate on personal income from 42.74% to 39% in the Budget FY24 hasn't curbed tax evasion among HNIs.
The department is now conducting a "360-degree profiling" of individuals with reported or likely annual income above Rs 1 crore. This involves tracking their investment profiles, expenses incurred, and sources of income.
The department has also said that the number of taxpayers who reported annual income of Rs 1 crore or more in FY23 is much lower than the actual number of individuals with such income. This suggests that a large number of HNIs are underpaying their taxes.
The department will send notices to those who have under-reported their income once the screening is complete.
The government had cut the surcharge on those with annual income of Rs 5 crore and above in the Budget for this year. This brought down the effective tax rate on them by a substantial 374 basis points. However, the department has found that this has not had the desired effect of curbing tax evasion among HNIs.
The department's crackdown on tax evasion is expected to boost the government's revenue. It will also send a strong message to HNIs that they are not above the law.
What can HNIs do to avoid scrutiny by the Income Tax Department?
- HNIs should ensure that they are reporting their income accurately and completely in their tax returns.
- They should keep all necessary documentation to support their claims, such as receipts for expenses and invoices for investments.
- They should be aware of the latest tax laws and regulations.
- If they have any doubts, they should consult with a tax expert.
HNIs should also note that the Income Tax Department is using increasingly sophisticated tools and techniques to detect tax evasion. They should therefore be careful not to engage in any tax avoidance or evasion schemes.
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