TAX EVASION IN INDIA

CAUSES AND REMEDIES

Under the guidance of: Submitted By:
Mrs. Rinku Manocha Puneet Lokwani
(Faculty of College) Roll No. 1002
B. Com (Hons) Sem VI
 OBJECTIVES OF THE PROJECT

 To discuss the major factors responsible for tax evasion.

 To show the high impact of tax evasion on variables such as tax system, transparency,
fairness and accountability.
 To analyze and evaluate the recent government policies and schemes taken up or
proposed to curb tax evasion.
 To reveal that the low quality of service to the public in return for tax significantly
impact the tax evasion practices in India.
 To recommend necessary steps to be taken in view of transparency, accountability and
corruption in order to minimize the tax evasion practices in India.
 INTRODUCTION TO TAX EVASION

 Tax Evasion refers to the deliberate omission of income on tax return, the non-
payment of taxes owed or not filing a tax return altogether, to avoid having to pay
taxes to the government.
 Tax evasion is different from Tax Avoidance in following ways:

Tax Evasion Tax Avoidance

Involve fraudulent techniques like deliberate
under/over statement or willful non-disclosure of
material facts.
Arrangement is made subsequent to the occurrence
of tax liability.
Does not involve any fraudulent techniques, rather
involves proper tax planning to take the benefits of
loopholes in the law.
Arrangement is made prior to the occurrence of tax
liability

Criminal Activity. Completely Legal.

Result: Imprisonment/Penalty or Both. Result: Postponement of Tax.
 ANALYSIS AND INTERPRETATION OF
CAG REPORT, 2016
 The Government of India made public the income tax data for the last 16 years in a report
released by CAG in April, 2016.
 The CAG report revealed some astonishing points about the India’s tax payment pattern like:
Among 120 crore Indians, only 4% (5.1 crore) filed Income tax in 2015-16.
An even smaller number, only 1.3 crore individuals paid income tax.
There are just over 10 lakh assesses in India declaring income above Rs. 10 lakh a year.
Only 3 Indians pay more than Rs. 100 Crore a year in income tax.
85% of the tax payers pay less than Rs. 1.5 lakh p.a. as income tax.
Maharashtra and Delhi pay 53% of India’s total income tax.
 This data shows a picture where tax evasion by individuals is so huge that it can create major
impediments to India.
 The data is the testimony of India’s failure to broaden the tax net even though 2 decades have
passed after the economic liberalization.
 CAUSES OF TAX EVASION IN INDIA

 Low level of voluntary tax compliance:

High rates of taxation.
Low quality of services in return.
Political Instability.
Low transparency and accountability of public institutions.
High compliance costs.
Existence of large no. of taxes.
 Weak enforcement of tax laws:
 Insufficient amount of tax collection
Weak capacity in detecting and prosecuting inappropriate tax practices
Failure to curb bribery.
Lack of Simplified procedures
 IMPACT OF TAX EVASION

 Reduction in Economic Growth.

 Loss of Revenue and Increase in Inflation.
 Transfer of funds through clandestine channels.
 Poor standards of living of rural masses and BPL people.
 Disequilibrium in economic condition of India.
 Increased tax burden.
 Lack of developmental activities.
RECENT GOVERNMENT POLICIES AND
SCHEMES TO CURB TAX EVASION
• Income Declaration Scheme, 2016
• Goods and Services Tax (proposed)
• Demonetization
 INCOME DECLARATION SCHEME, 2016

 Under IDS, 2016, the declaration of any “undisclosed income” can be made as against
“undisclosed foreign income" under Black Money Act, 2016.
 The net tax liability under IDS, 2016 is only 45% of undisclosed income, which is lower
than the Black Money Act (60% of undisclosed income)
 Under the IDS, 2016, the penalty will be just 25% (of 30%) as against 100-300% under
the provisions of section 271 and 50% or 200% under Section 270A (proposed for 2017)
 Clearly, IDS, 2016 is a beneficial scheme for eligible taxpayers to declare the income
which was not offered to tax earlier.
 GOODS AND SERVICES TAX (PROPOSED)
 Multiplicity of indirect taxes and tax base being fragmented between Centre and State
have resulted in a complex system of interconnected legislations leading to substantial
distortions, cascading of taxes and adversely effecting GDP growth.
 To remove the limitations of the existing Indian Indirect tax structure, the government
has proposed GST which is consumption type VAT where only final consumption is
treated as the final use of a good.
 GST is expected to integrate taxes on goods and services across all supply chain for
availing set-off and capture value addition at each stage.
 Expectations from GST:
Tax Neutrality
Simplicity and Efficiency
Clarity in GST legislations
Conciliation and Redressal Mechanism
 DEMONETIZATION

 Nov 8, 2016 marked the Govt of India’s decision to cancel the legal tender character of
Rs. 500 and Rs.1000 banknotes and the issuance of new Rs. 500 and Rs. 2000
banknotes in exchange for the old banknotes.
 This measure was taken up by the govt. to address tax evasion, counterfeit currency
and funding of illegal activities.
 Implications:
Wiped out most of the illegal accumulated cash from the system.
Ceased the circulation of counterfeit currency.
Curb the menace of corruption and terrorism.
Bring the outside money back into the financial system which would result in reduction of
interest rates and address the problem of NPAs.
Help in cleaning the process of Elections in India.
Improve tax collections.
 RECOMMENDATIONS AND POLICY MEASURES
FOR IMPROVEMENT IN TAX COMPLIANCE

 Reduction in tax rates.  Stronger penalties for non-compliance

 More simplified laws and system.  Sense of responsibility among taxpayers.

 Well organized tax administration  Use of media.

structure.
 More autonomous administration.
 Increased awareness among taxpayers.
 Regular updation of provisions.
 Corruption free officials and taxpayers.
 CONCLUSION

 High tax rates, corruption in public sector units, and inefficient tax authorities are the
main causes of tax evasion in India.
 Psychologically, Indians do not consider tax evasion as a moral problem or
“cheating”, but rather an attribute of “smartness” which places an unfair burden on
the compliant taxpayers.
 Tax Evasion makes it difficult for the government to meet its revenue targets, which
in turn, makes it difficult to maintain fiscal prudence and slows down the economic
growth.
 There is a need to:
Create transparent, friendlier and less discriminative administration system.
Educate the people about Indian Tax Laws.
Create such an environment in which they pay their due taxes and feel proud in discharging
their duty to pay.
THANK YOU