In a bid to ensure accurate tax compliance, the Income Tax department is intensifying its efforts to reconcile discrepancies between the tax deducted at source (TDS) by companies and the declarations made by employees in their annual I-T returns. Employing a meticulous line-wise verification process, the department is scrutinizing various aspects, including house rent allowance, medical insurance, home loan outgo, and tax-saving investments under Section 80C.
Numerous companies in major cities like Mumbai and Delhi have received notices under Section 133C, introduced in 2014-15, empowering authorities to seek information for verification purposes. Companies are required to either confirm the information or provide a correction statement in response to these notices.
The department's objective is to identify cases where tax discrepancies exist, either due to companies deducting less TDS than required or employees making unreported investment declarations, leading to potential refunds. Section 133C, previously sparingly used, is now being leveraged for a detailed line-wise verification using technology to bridge the gap between reporting by companies and employees.
An annexure to the notices includes a list of employees, emphasizing the need for a selective and cautious approach to scrutiny. Experts suggest that a focused examination at both the employer and employee levels can lead to improved withholding tax compliance, accurate claims, increased tax collection, and a fair selection of tax regimes for individuals.
While the law places the responsibility on employers to correctly compute and report TDS every quarter, companies traditionally have not closely verified employee declarations. The notices serve as an effective tool to identify erroneous claims, with penalties applicable for non-compliance. Experts advise prompt compliance with the notices and caution against taking them lightly.
Interestingly, if employees make false claims endorsed by companies, the tax office system may not readily detect the gap. However, any variance between the two sets of information is likely to be immediately noticed if a case undergoes tax office scrutiny, potentially leading to a comprehensive examination of all employee records.
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