ITR filing: Using AI and tech, Income-Tax department sends notices to tax evaders for fake donations

One can claim deductions of 50-100 percent for donations to political parties and charitable trusts under Section 80 G.

What are these notices? The notices were issued under Section 138 and 148 (A). In many cases, only an erroneous deduction has been raised in the notice. But in a few cases where a higher sum of donation has been claimed, a reassessment notice has been sent.

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Reassessment of income tax returns can be done at any time within 10 years for those with an income above Rs 50 lakh and within eight years for those earning less than Rs 50 lakh. Returns for transactions in FY19 (filed under assessment year FY20) can be reassessed until March 31, 2029.

“These notices have been sent primarily to residents of Gujarat, who had donated to political parties,” said a chartered accountant privy to the information. Moneycontrol could not independently verify this claim.

How are returns picked up for reassessment? The department has ways to identify whether a donation claim is genuine or fake. Computerisation of returns helps to match the data mentioned by charitable trusts or political parties in their tax returns with donation details mentioned by individuals.

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Only an assistant commissioner or a deputy commissioner with strong facts and reasoning to question tax evasion is permitted to raise a reassessment notice.

In the Union Budget of February 2019, charitable trusts were mandated to obtain a unique identification number. Only donations made to trusts with these numbers were permitted for Section 80 G deduction starting April 1, 2020.

Section 80 G donation details were supposed to be pre-filled in downloaded income-tax return forms using data captured from charitable trusts, but the measure was postponed due to the COVID-19 lockdown.

What should you do? If you have received such a notice, you need to respond to the notice.

“One would have to respond to the notice sent under Section 148 (A). If the individual has the proof of the donation, then the same can be produced in response. Else, the liable tax along with the penalty mentioned in the notice would have to be paid,” said Karan Batra, co-founder of tax advisory CharteredClub.com.

Penalties of 50-200 percent are applicable if one cannot prove a transaction is genuine and is found to have evaded tax. The proof needs to be submitted within 30 days of receiving the notice. Offering erroneous information will attract penalties, including 50 percent of the tax liable for under-reporting or 200 percent of tax for misreported income.

If you haven’t received a notice but have realised that you wrongfully claimed Section 80 G tax deduction, then you can update your returns.

“One can update the returns within two years by bearing a 25-50 percent higher taxation,” said Batra.

One must weigh whether it is better to get a notice and pay tax and penalty or update one’s returns and pay higher tax.

“One would have to do a cost-benefit analysis of whether a Rs 30,000 tax (excluding surcharge and penalty) on Rs 1 lakh worth of income donated would be better than filing an updated return and paying 25-50 percent higher tax,” said Savla.

Avoid fake links While responding to a notice, do check your account on the income tax portal.

“To avoid fake links and sharing essential information, one should check the portal. Every notice issued against your permanent account number (PAN) would be listed in the ‘Respond’ tab under your account,” said Batra.