Income Tax Department introduces 360 Degree Profiling of HNI Tax Evaders
The Income Tax Department is preparing to prosecute high-net-worth individuals (HNIs) who underpay their taxes. This comes after the department discovered that the reduction in the highest tax rate on personal income in the Budget FY24 from 42.74% to 39% hasn’t reduced tax evasion among HNIs.
The department is currently doing a “360-degree profiling” of those with declared or expected yearly incomes of more than Rs. 1 crore. This includes keeping track of their investment profiles, costs, and revenue sources.
The department further stated that the number of taxpayers who declared annual income of Rs. 1 crore or more in FY23 is significantly lower than the real number of such individuals. This implies that a significant number of HNIs are underpaying their taxes.
Once the screening is completed, the government will send letters to people who have under-reported their income.
In this year’s Budget, the government reduced the surcharge for persons having an annual income of Rs. 5 crore or above. This resulted in a 374 basis point reduction in their effective tax rate. However, the department discovered that this had no effect on reducing tax cheating among HNIs.
The department’s crackdown on tax evasion is intended to increase revenue for the government. It will also send a clear message to high-level executives that they are not above the law.
What may HNIs do to avoid Income Tax Department scrutiny?
- HNIs should make certain that their income is accurately and thoroughly reported in their tax forms.
- They should preserve all essential evidence to back up their claims, such as expense receipts and investment invoices.
- They should be up to date on the most recent tax rules and regulations.
- If they have any doubts, they should seek the advice of a tax specialist.
HNIs should also be aware that the IRS is employing increasingly sophisticated tools and procedures to discover tax evasion. As a result, they should be cautious not to engage in any tax avoidance or evasion methods.
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