The Income Tax Department is fully prepared to take stringent action against high-net-worth individuals (HNIs) who engage in tax underpayment, according to Financial Express. This decision follows the department’s discovery that the reduction in the highest tax rate on personal income from 42.74% to 39% in the FY24 Budget has not deterred tax evasion among HNIs.
The department is currently engaged in a comprehensive “360-degree profiling” of individuals who have either reported or are likely to have an annual income exceeding ₹1 crore. This involves scrutinizing their investment patterns, expenditures, and income sources.
Additionally, the department has indicated that the count of taxpayers who declared an annual income of ₹1 crore or higher in FY23 significantly lags behind the true count of individuals possessing such income. This implies that a substantial portion of HNI individuals may be engaged in tax underpayment. Once the screening process is finalized, the department will issue notices to those individuals who have inaccurately reported their income.
In this year’s Budget, the government reduced the surcharge for individuals with an annual income of ₹5 crore and higher, resulting in a significant decrease of 374 basis points in their effective tax rate. Nevertheless, the department has determined that this change did not achieve the intended outcome of deterring tax evasion among HNIs.
The department’s efforts to combat tax evasion are anticipated to enhance the government’s revenue, concurrently delivering a clear message to HNIs that they are not exempt from the law.
How can HNIs evade scrutiny from the Income Tax Department?
Inclined HNIs should take the following steps to ensure compliance and reduce the risk of scrutiny by the Income Tax Department:
- Ensure accurate and thorough reporting of their income in their tax returns.
- Maintain comprehensive documentation to substantiate their claims, including retaining receipts for expenses and invoices for investments.
- Stay informed about the most recent tax laws and regulations.
- Seek guidance from tax experts when in doubt about any tax-related matters.
Also, HNIs should be aware that the Income Tax Department is employing progressively advanced tools and methodologies to identify tax evasion. Consequently, they must exercise caution and abstain from participating in any tax avoidance or evasion schemes.
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Updated: 31 Oct 2023, 09:07 AM IST