Tax Evasion Schemes in India: A Menace to the Economy
New Delhi, February 16, 2024 - Tax evasion has emerged as a significant challenge for the Indian government and economy.
What is Tax Evasion?
Tax evasion is an illegal practice where individuals, corporations, trusts, and other entities deliberately misrepresent or conceal information to reduce their tax liability. The Income Tax Department uses advanced data analytics to track tax returns and financial transactions, cross-referencing data from banks, property transactions, and other financial records to identify discrepancies.
Common Tactics Employed by Tax Evaders
- Underreporting income
- Inflating deductions and expenses
- Hiding money or assets in offshore accounts
- Using fake documents
- Illegal activities
- Money laundering
Tax Havens and Shell Companies
Multinational corporations use tax havens and shell companies to evade taxes. Transfer pricing, where prices for transactions between subsidiaries are set to shift income to lower-tax jurisdictions, is another common practice.
Government Efforts to Track Tax Evasion in India
- The Goods and Services Tax (GST) system has a built-in mechanism to track transactions and ensure compliance.
- Financial institutions are required to report high-value transactions.
- Technology, including Artificial Intelligence, is being used to analyze data and detect patterns indicative of tax evasion.
Whistleblowers and International Cooperation
Whistleblowers are encouraged to come forward with rewards for identifying tax evaders. India collaborates with other countries to exchange financial information, helping to track cross-border tax evasion.
Consequences of Tax Evasion in India
- Severe penalties, including monetary fines, criminal charges, imprisonment, interest, additional penalties, asset forfeiture, and revocation of professional licenses.
- Undermines the integrity of India’s financial system and hampers the government’s ability to provide essential public services.
A Collective Responsibility
It is a collective responsibility of all citizens and entities to contribute fairly to the nation’s development.