The income tax (I-T) department has found that some 447 companies, many of them builders, diverted employees’ tax deducted at source (TDS) for business rather than depositing it with the government. The scam runs into tune of Rs 3,200 cr.
The TDS wing of the I-T department has started prosecution against these companies in the Esplanade metropolitan magistrate court and in some of the cases, warrants have been issued. Under section 276 B of the Income Tax Act, the offences attract a minimum rigorous imprisonment of three months and a maximum of seven years with fine. The I-T department is further thinking about invoking IPC sections of cheating and criminal breach of trust as this act amounts to duping its employees.
According to sources, a leading and politically connected builder diverted Rs 100 cr collected from his employees for business purposes. Besides builders, other offenders include movie production houses, infrastructure companies, startups and fly-by-night operators. An infrastructure company, part of a port development, has diverted Rs 14 cr, sources said. A multinational company that provides information technology solutions has not deposited Rs 11 cr deducted from its employees.
A senior I-T official said, “In the recent verification surveys carried out, it was detected that in 447 cases, Rs 3,200 cr was deducted by the companies but not deposited into the government account.” This is for the period April 2017 till now. “We intend to arrest some of them,” the official added.
These companies are required by law under the Income Tax Act to deduct TDS and deposit it into the government account within a prescribed time frame. The I-T department has initiated recovery actions by attaching bank accounts besides movable and immovable assets, a source said.
All TDS ought to be remitted to the central government’s account within seven days from the end of the month in which deduction is made or before the prescribed dates. The payments can also be made quarterly.
“In several cases, the employers diverted the money towards working capital. Some apologized and promised to pay while some said they could not pay because of adverse market conditions. In some cases, employers deposited 50% of the TDS with the government and misused the balance,’’ an official explained. The I-T officials also came across startups that functioned for a brief period and vanished in thin air besides fly-by-night operators whose intention was not to carry out any genuine business.
The official said, “The employees found a mismatch when they filed returns (last year). Several employees had lots of grievance to share.”
Officials said it is not possible to fool the system since everything is digitized. The department also held a seminar where government bodies were explained the process and asked to pay up. A cooperative bank had not paid Rs 4 cr. “Here, they were not aware and the intention was not to cheat,” the official said.