ADVERTISEMENT

Taxman ‘Harassed’ Salaried Taxpayers By Not Issuing TDS Refunds, CAG Says

The department, the CAG said, didn’t issue refunds for tax deducted at source due to mismatch in deductions and refunds claimed.

The Income Tax Department head office in Mumbai. (Photo: BloombergQuint)
The Income Tax Department head office in Mumbai. (Photo: BloombergQuint)

The Income Tax Department caused “harassment” to taxpayers by not issuing refunds for tax deducted at source due to mismatch in deductions and refunds claimed.

That’s according to a report by the Comptroller and Auditor General of India, which has said nearly 82% of taxpayers—who are mostly salaried—faced mismatch in TDS that reflected in their Form 26AS and income tax returns filed from 2016-17 to 2018-19. Form 26AS is an annual tax statement that includes information on tax deducted or collected at source, advance tax and self-assessment tax.

The possible reasons for this mismatch, according to the CAG, could be the deductor or employer not depositing TDS or filing the quarterly TDS return on time, entering incorrect amounts in returns, quoting incorrect PAN, mentioning different assessment year, among others.

“As a result, income tax department did not allow credit for TDS which resulted into either raising demand or not releasing refunds, causing harassment to the assesses,” the report said.

Tax deducted at source on salary was nearly 43% of total TDS collected between 2016-17 and 2018-19, the auditor said. During this period, TDS collections rose by nearly a third to Rs 4.51 lakh crore, the report said, emphasising “its ever-growing importance”. It now contributes over 35% to gross direct taxes collections.

What’s The Reason?

The report said an assessee may file his return of income according to details available with him in Form 16 or 16A and 26AS. However, the tax credit is given by the tax department based on details available in its tax information network that contains details of advance tax, self-assessment tax and regular TDS payments.

A mismatch is reported when the TDS deduction claimed by a taxpayer does not match with deduction in tax information network. Due to such mismatch, the refund is denied to taxpayer despite receipt of the revenue by the tax department or presence of Form 16 or 16A issued by deductor to support of his claim, the report said.

“This results in disallowance of refunds and also in creation of infructuous demands for tax resulting in avoidable harassment to the taxpayer,” it said.

Constitutional Violation

The Department of Revenue, under the Ministry of Finance, has been classifying interest on refunds of excess tax collected as “reduction in revenue”, the report said.

This is in violation of Articles 114 (3) and 266 (3) of the Indian Constitution that say interest on excess tax collected or refunds cannot be withdrawn from the Consolidated Fund of India until approved by the Parliament.

No action has been taken by the Income Tax Department despite the issue being flagged by CAG previously. This issue has also been highlighted by the Parliamentary Standing Committee on Finance that said higher refund of Rs 1.71 lakh crore given by department in 2019-20 was due to an increase in interest of Rs 22,856 crore paid to taxpayers in 2019-20.