Revenue & Tax Matters
Legal Framework of Revenue and Tax Matters in India
- Introduction: Revenue and taxation in India represent the foundation of the country's fiscal policy, enabling the government to fund public services, infrastructure, and social welfare programs. Governed by a detailed, lawful framework, the system of taxation in India is categorized into direct and indirect taxes, which both the central and state governments impose. The Constitution of India specifies the structure of taxation, along with the three lists — Union, State, and Concurrent lists —outlining the tax powers of different government levels.
- Constitution of India
- Article 265: No tax may be imposed or collected without the provisions of law.
- Article 246: Highlights the division of powers of the legislative regarding taxes among the union and the state, consisting of three lists (union, state, and concurrent).
- The Income Tax Act, 1961: Governs the taxation of individuals, corporations, and other authorities based on income. Section 2 of the act defines income, which includes profits, wages, dividends, and other similar forms of earnings. The income tax department is liable for managing and enforcing these tax laws. The tax system is intensifying, applying higher rates to higher levels of income.
- Central Goods and Services Tax (GST), 2017: Enacted in the year 2017, which replaced various taxes like VAT, Service tax, Wealth tax, Gift Tax, and excise duties. It is a destination-based tax, which has two significant components: CGST (Central GST), which the central government collects, and SGST (State GST), which the state governments collect, and one more known as IGST (Integrated GST), which is applicable for interstate sales and collected by the central government. The council of GST manages the implementation of laws and amendments. The Central Board of Indirect Taxes and Customs (CBIC) is the governing body responsible for its administration.
- The Customs Act, 1962: Governs the imposition of customs duties on exports and imports, and it also prevents smuggling and ensures a legal trade. It outlines the structure for customs authorities, penalties, and procedures, and also appeals to those involved in customs matters.
- The Companies Act, 2013: It regulates corporate laws, including aspects of taxation. The act ensures transparency and alignment with the tax laws, authorizing precise evaluation and reporting of taxable income.
- The Benami Transaction (Prohibition) Act, 1988: Seeks to prohibit transactions where one individual holds the property on behalf of another individual. There is a ban on benami transactions, which states that no person shall engage in transactions involving the holding of assets of others.
- Prevention of Money Laundering Act, 2002: Handles matters surrounding money laundering and focuses on preventing illegal financial activities. It clarifies and criminalizes actions linked to money laundering. Also, require financial authorities to report any suspicious transactions.
- The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015: Focuses on combating black money discovered outside India and imposes a tax on undisclosed foreign income and assets. It forces Indian citizens to disclose their assets abroad.
- The Income Declaration Scheme (IDS), 2016: Aims to offer taxpayers a fair chance to declare previously hidden income and assets without facing any legal consequences. It permits voluntary declarations of assets and income without any legal actions or penalties. A 45% tax rate was set on the income that was declared under this scheme.
- The Digital Taxation Laws: Address transactions of taxation in the digital economy, including e-commerce and global digital services.
Tax Administrations
- Central Board of Direct Taxes (CBDT): This is in charge of developing policies regarding income tax.
- Central Board of Indirect Taxes and Customs (CBIC): It handles customs duties, central excise, and Goods and Services Tax.
- State Tax Authorities: These entities are responsible for taxes such as VAT, state excise, and state GST.
- Income Tax Department: This department is responsible for enforcing laws related to income tax and collecting taxes.
- Tax Tribunals: The Income Tax Appellate Tribunal (ITAT) and GST Appellate Tribunal serve as quasi-judicial authorities for solving matters.
- Appellate Mechanism: Taxpayers have the right to Appeal and request Revisions of rulings made by tax authorities to the higher-level bodies, such as the CIT Appeals, etc.
International Framework
- Double Taxation Avoidance Agreements (DTAAs): These agreements are established among two or more countries, focusing on eliminating or reducing double taxation on income or profits generated by one country's citizens in another. These agreements provide solutions, such as tax credits or exemptions, to prevent taxpayers from being subject to double taxation on the same income across multiple jurisdictions. DTAAs also describe the taxing authorities of every nation regarding distinct kinds of income.
- OECD Model Tax Convention: The OECD provides a Model Tax Convention on Income and Capital, which serves as a framework for Double Taxation Agreements (DTAAs) among nations. This model seeks to regulate tax treaty provisions and solve complications such as double taxation.
- International Monetary Fund: The IMF provides technical assistance and policy recommendations to countries on tax-related issues, particularly concerning revenue mobilization, fiscal transparency, and effective tax systems. It guides nations in forming enduring tax policies and enhancing revenue collection methods.
- World Trade Organisation (WTO): While the WTO consistently deals in trade regulations, it also indirectly affects matters of tax by establishing a universal standard of trade practices, which entails various guidelines related to tax.
- Financial Action Task Force (FATF): The FATF develops nationwide standards to combat money laundering and the financing of terrorism, which notably impacts matters of taxation. Countries are urged to adopt stringent financial transparency measures to prevent illicit activities that could compromise tax compliance.
- Common Reporting Standard (CRS): Established by the Organisation for Economic Co-operation and Development (OECD), the CRS is a global benchmark for the automatic sharing of financial information of accounts between governments. The CRS focuses on combating tax evasion by supplying tax authorities with data on foreign-held bank accounts, while ensuring that persons and businesses satisfy their tax liabilities on global income.
- World Bank: The World Bank collaborates with nations to create an effective system of taxation, providing technical support and policy assistance on public financial management, and generating profits, especially in low-income and developing countries.
- International Bureau of Fiscal Documentation (IBFD): The IBFD is an outstanding organization in the realm of global tax law. It provides resources, research, and analysis on International tax cases, offering advice to governments, businesses, and tax professionals.
Major Amendments
- The Taxation Laws (Amendment) Act, 2021
- Section 9 of the Income Tax Act 1961: A proviso is inserted after section 9(1)(i) to give relief to certain eligible entities impacted by the retrospective amendment.
- Section 119 of the Finance Act, 2012: The proviso has been added in section 119 of the act stating that this section will cease to apply to the individual who satisfies the conditions mentioned in the proviso.
- The Central Goods and Services Tax (second amendment) Act, 2023
- Section 110: After section 110(b)(ii), a sub-clause (iii) has been inserted which states the qualifications and appointment of GST Appellate Tribunal members.
- Proviso to section 110: A new proviso was added, which states that the person who has not completed the age of 50 years will not be eligible for appointment as president or member.
Violation of the Laws
- Tax Evasion: Tax Evasion means an illegal act of intentionally avoiding the payment of tax owed to the government. Some general examples of these include reporting low income, overdrawn expenditures or deductions, failure to file returns, or not completely disclosing income; modifying financial documents; or making incorrect claims for exemptions. Section 270A of the Income Tax Act 1961 deals with the misreporting of income. Section 271(c) deals with the penalties for concealing income, which may vary from 50% to 200% of the tax amount evaded.
- Non-filing of Tax Returns: Failure to file tax returns by the required timeline is a violation of Indian Tax legislation. Taxpayers who refuse to file their returns will face fines and might be subjected to prosecution if the refusal to file is consistent. According to the Income Tax Act, 1961, Section 139 requires tax returns to be filed within a specified timeline. If they fail to do so, authorities can impose penalties under Section 271F.
- Failure to Pay Taxes: Failure to pay taxes or delaying payments is also a violation. This entails both direct and indirect taxes. Section 220(2) of the Income Tax Act, 1961, encompasses penalties for the non-payment of taxes, including interest on the remaining amount. Also, Sections 47 and 50 of the GST Act, 2017, entail penalties for non-payment or delay of payments, along with interest on the due amount.
- Avoidance of Tax and Manipulation of Taxable Income: Although avoidance of tax is not unlawful, employing aggressive strategies of tax to decrease tax responsibility through escape clauses is not permitted. Tax entities are skeptical of such strategies because their primary focus is to avoid paying taxes, even if they do not intentionally violate tax legislation. Sections 68 (unexplained targets) and 69 (unexplained investments) of the IT Act, 1961, focus on questionable income sources. Additionally, sections 96 and 97 of the IT Act aim to address aggressive tax avoidance strategies.
- Non-compliance with GST: The Act establishes the lawful structure for the taxation of goods and services in the country. Violation of GST includes failure in registration for GST, making fraudulent invoices or tax credits, failure to comply with GST filing timeframes, and submission of incorrect or misleading GST returns. Section 122 of the act imposes penalties for offenses such as issuing invoices without delivering goods and services or abusing fraud tax credits. Section 132 of the act addresses lawsuits for serious offenses, which may result in imprisonment for up to 5 years, along with a penalty.
- Evasion of Customs Duty: Offenses regarding customs duties, including taxes on goods that are imported or exported, wrongly detailing items to minimize duty payments, or tampering with documents. Section 111 of The Customs Act, 1962, states the seizure of goods and vehicles involved in unofficial imports or exports. Additionally, Section 132 of the Act highlights penalties for tax evasion, document fraud, or non-compliance with the law. In cases of major violations under the act, offenders may face imprisonment for up to 7 years and a fine.
- Benami Transactions: The Act prohibits transferring property under another individual's name to hide the identity of the real owner. Breaching this law is considered a severe offense. Section 3 of the act makes every benami transaction unlawful, which also includes the transfer of assets when the real ownership is hidden. Section 4 outlines the penalties, which include fines and imprisonment, and may result in a sentence of up to 7 years.
- Money Laundering and Black Money: According to the Prevention of Money Laundering Act, 2002, acts such as hiding the source of funds for tax evasion, engaging in unlawful monetary transactions, or using financial entities for money laundering are punishable offenses. Section 3 of the act describes money laundering as a criminal offense. Section 4 of the act states penalties for offenses related to money laundering. Sections 5 and 17 of the act give authorities the power to seize and attach the assets interlinked to activities of money laundering. This is termed a non-bailable offense and might lead to imprisonment of up to 7 years and a penalty.
- Falsification of Books of Accounts: Taxpayers are liable to keep systematic records of income and expenditure. Modifying these records is termed a violation of tax laws. Section 277 of the IT Act, 1961 states that the falsification of accounts is a criminal offence. Section 278 addresses punishments for falsification; the culprit might face up to 3 years of imprisonment along with a fine.
- Tax Fraud and Conspiracy: When a person or organization conspires to avoid taxes, they can be charged with conspiracy or fraud. Such circumstances typically involve large-scale operations aimed at intentionally defrauding the government of tax revenue. Section 318 (4) of the BNS pertains to cheating and deceitfully persuading the delivery of property. Section 120A of the BNS addresses criminal conspiracy.
Procedure for Filing a Complaint
- Income Tax Issues
- Submission of Complaint against Officials of the Tax Department: If an individual has any kind of grievance against officials, they may complain to the Central Vigilance Commission, Income Tax Department, or Lokpal. When there is a complaint related to wrongful assessments, excessive demands of tax, or other misconduct, the matters should be referred to the Commissioner of Income Tax or the Chief Commissioner of Income Tax. The complaint must be in writing, detailed, and include evidence. If the complaint is related to the accusations or the misconduct, it can be filed with the CVC both online and offline.
- Appeal Filing against an Assessment or Fine: If an individual is unsatisfied with the assessment of income tax or penalty, there is an option of Appeal. For the commissioner of income tax, it should be filed within 30 days from the receipt of the order. Filing of an appeal with the Income Tax Appellate Tribunal within 60 days from the date of the CIT (A) 's decision. If an individual feels the ruling is unfavorable, they can submit an appeal to a higher court under Section 260A of the IT Act.
- GST Issues
- Filing of Complaint Concerning GST Non-adherence or Misconduct: For the issues relating to GST, a complaint must be lodged with the GST Authorities. Submission of a formal complaint or appeal to the GST appellate tribunal within 3 months from the date of the judgment. An additional appeal to the High Court or the Supreme Court can be made depending on the matters at hand.
- Matters of Customs Duty
- Filing of Complaints against Customs Officials: If one has complaints concerning misconduct, corruption, or illegal detentions, one can submit a complaint to the customs department or CVC. The complaint should be in writing, including all essential details, supporting evidence, and relevant documents. It can be submitted online.
- Filing of an Appeal: For the Commissioner of Customs, it should be filed within 60 days from the date you received the order. When the commissioner is unable to solve the matter, the appeal should be filed to the Customs, Excise, and Service Tax appellate tribunal within 3 months from the date of the order received from the commissioner. Lastly, if unsatisfied, an appeal can be filed to higher courts.
- Other Tax breaches (Benami and Money Laundering)
- Filing of Complaint: If there is any kind of illegal transaction suspected, you might file a complaint with the Income Tax Department or the Benami Transaction Prohibition Unit. It should be supported with the correct evidence and documents.
- Complaints Concerning Money Laundering and Black money should be submitted to the Financial Intelligence Unit, Enforcement Directorate, or the Central Bureau of Investigation
- General steps for lodging a Tax complaint in India
- Identifying the Concerned Authority: It depends on the nature of the matter, and it is essential to identify the type of complaint that should be filed with an appropriate authority.
- Drafting a Written Complaint: It should be detailed, inclusive of facts and evidence, personal information, and a copy of relevant orders or notices linked to the issue.
- Submission of a Complaint: It can be submitted either online or in person at the relevant portals and authorities.
- Follow-up: After submission, it is advised to keep following up with matters in the court to keep updated.
How Can Seasoned Advocates Help You?
- Assistance on Tax Strategies and Compliance: Possesses complete knowledge of tax laws and can assist clients with legal methods to minimize tax responsibilities. Help in tax planning, making sure clients maximize available exemptions, deductions, and refunds while complying with laws.
- Managing Appeals against Tax Evaluations: Appeal to the appropriate appellate authorities against the wrong evaluation of a client's matters in Income Tax or GST. Help in planning a route through the process of appeals, whether with the commissioner of Income Tax or the GST appellate Tribunal, ensuring the timely submission of appeals.
- Defending against Claims of Tax Eviction or Fraud: In situations of alleged tax evasion or fraud, defend the client by challenging the evidence, presenting counterarguments, and protecting their rights.
- Negotiating Settlements and Mitigating Fines: Can aid you in negotiating settlements with tax authorities. Help you resolve conflicts through compromise settlements or Alternative Dispute Resolution (ADR) methods.
- Addressing Complex Cross-Border Tax Matters: For persons or business entities engaged in Global transactions, provide counsel on adherence with both Indian tax regulations and global tax treaties, like DTAAs.
- Managing Tax Refund Complexities: Help clients in circumstances where tax refunds are either delayed or denied. Deal with the procedural aspects and represent clients in contesting decisions made by the tax authorities.
- Legal Action in Tax-Related Matters: If a tax issue surges to the High Court or Supreme Court, provide representation, advocating for the client to secure a satisfactory decision. Manage complex tax-related litigation and other legal concerns needing judicial intervention.
Conclusion
To conclude, India's legal frameworks, which comprise several laws, regulate matters of revenue and taxation, and procedures are in place to encourage adherence and equitable taxation. As the difficulties of both direct and indirect tax systems increase, individuals and businesses continually face challenges that require legal expertise. To know more, contact us.