Forget pugs and mobile phone networks. When it comes to doggedly pursuing suspected cases of tax evasion, who can match the perseverance of Indian taxmen?
The latest reminder of this came from Vodafone winning a tax case against the Indian authorities last week. Vodafone India (this time around) was slapped with a ₹3,200-crore tax demand for issuing new shares to its parent company at what the taxmen alleged, was an unduly cheap price. They reckoned that this violated ‘transfer pricing norms’ which require all parent-subsidiary dealings to happen at a fair price. By undervaluing the shares issued to the parent, tax authorities argued, Vodafone India had saved a tidy sum on taxes. But the Court felt the company was in the right. As this transaction was about capital received by an Indian firm and not income, there wasn’t any income tax owed, it ruled.
Domestic tax laws allow the authorities to issue ‘demand notices’ even to people who have paid all their taxes for the year and have dutifully filed their returns. Sections 143, 153 and 210 of the Income Tax Act for instance, allow the CBDT to send you notices, if the scrutiny officer disputes your calculations or even simply believes that you have under-reported income. Many law-abiding investors who make big cash transactions, property purchases, or even mutual fund investments have indeed been taken up for such ‘scrutiny’.
Why should I care? If the Government of the day is short of cash, don’t forget, it can delay your refunds, open up your old returns for scrutiny or extract its pound of flesh in myriad other ways. Dealing with tax authorities, if they do decide to ‘terrorise’ you, isn’t easy. You need to understand the legalese that underpins such notices, hire an expert and personally convince the assessing officer of your arguments.
You can also get into trouble if you delay payments or forget to pay your taxes on time. While the taxman may take his time with your refunds for many reasons, if you delay paying your annual taxes, the penalties can be pretty stiff. You not only have to pay interest at 1 per cent per month on the tax due, you can also be asked to cough up a penalty of another 1 per cent per month (totalling up to 24 per cent per year), if you underestimate your advance tax dues!
The bottomline If you’re in India, evading taxes is downright foolish. But paying them is no guarantee that you will certainly sleep well at nights.