Are You Afraid Of Being A Victim Of Tax Terrorism In FY 2019-20?
Apr 08, 2019

Author: PersonalFN Content & Research Team

(Image source:, Photo created by d3images)

If the Income-Tax (I-T) Department has issued a tax demand notice against you, beware!

Make sure you respond to it quickly and appropriately.

The Modi led NDA Government seems to be going overboard with tax compliance and recovery of tax dues.

So much so that opposition's allegations of its imposing the tax terrorism don't sound unreasonable after reading stories reported by the media.

Here're instances of tax terrorism...

As reported by the Economic Times dated 4th April 2019, there have been instances wherein the Department had issued demand notices to assessees upon which the assessees either failed to deposit 20% notice amount before challenging it, as required by the law; or they didn't responded to the notice at all.

The Department has taken a tough stance against them and has been writing to their bankers and debtors to recover dues.

Didn't quite understand this?

In simple words, under circumstances resembling those described above, the tax department will write directly to your bankers to allow it to debit your account for the amount of tax dues. Further, the I-T Department may even write to your debtors asking them to deposit the amount they owe you in the government account instead of paying back your debt.

Suppose you took a loan from a private lender for business purpose and one day you received a notice from the I-T department regarding his tax liability.

As reported by the Economic Times, the Department has warned several debtors with letters such as this: Please note that if you discharge any liability to the assesse after the receipt of this notice you will personally be liable to me as assessing officer/ tax recovery officer to the extent of the liability discharged, or to the extent of the liability of the assessee for tax/penalty /interest/ fine ... whichever is less.

Would you dare not to follow these instructions?

There's nothing illegal about taxman's approach. The law permits the Department to by-pass assessees for collecting dues.

The amount I-T Department (creditor) recovers from third parties that owe the assessee against his/her tax liability is called garnishee proceedings. And it's perfectly legal.

In the language of accountancy, the I-T department can make your debtor, their debtor to the extent of the amount of tax dues including interest thereon.

Is garnishee proceedings a new practice?

No! However, the I-T Department used these draconian provisions only in the case of willful defaulters until recently. But now that it is facing the "target pressure" of late, the Department seems to have started chasing the taxpayers in a big way.

In FY 2018-19, the direct tax collections have fallen short of government's expectations by approximately Rs 60,000 to Rs 65,000 crore.

Unless the government increases its tax collections, it might fail to fulfill its fiscal deficit targets. The government aims to contain the fiscal deficit at 3.4% in FY 2019-20. Experts believe it will be a tough task for the government to achieve such a steep target.

Does that mean, collecting garnishee proceedings would become a routine for the I-T Department?

From 1st April 2019, I-T Department has made 'Project Insight' fully operational. With this ambitious project becoming functional, the Department can now syntheses all information about you on a single platform to determine if you are a tax evader.

[Read: Evading Income Tax May Soon Become Impossible. Here's Why...]

If you consider garnishee proceedings as a tool to punish alleged tax evaders then you might experience a déjà vu moment. Doesn't excessive power in the hands of taxmen made them corrupt?

Do you remember the days when one had to bribe I-T officials to collect the cheques of tax refunds? One had to pay as much as 10% amount of the refund as bribe.

At this juncture, we stand 180 degrees opposite. But what's the guarantee that I-T Department officials won't get hooked to their old practices?

What's the guarantee that the unreasonable demand orders won't be slammed on taxpayers?

Is there any other motive behind using the draconian legal provisions that were commonly meant to be used, only rarely?

Governments in the past have lost elections on issues such as corruption, so as for running the country in an autocratic way.

Chasing citizens of the country, looking upon all of them as tax evaders and vesting excessive and unreasonable powers in the hands of government officials (without teaching them how to use them diligently) might set wrong precedents.

Perhaps, governments don't realise such issues until they cost them election defeats.

Should anything change for you as a taxpayer?

If you pay taxes diligently, declare all your income, don't have any illegitimate source of income and file your income tax returns honestly and on time, you need not worry. Hawkish I-T Department may not chase you. After all, as citizens we must believe that the government will keep its promise of making the tax department friendly.

Although you can take help of your tax consultant while filing your returns and seek opinion from him, a self-study approach on your tax planning exercise is also quite necessary as one should be well versed with at least those tax provisions which affect us directly.

If you are looking at the ways you can save your hard earned money from the tax-man, legally, and reduce the tax burden quickly and smartly, PersonalFN's Comprehensive Guide to Tax Planning (2019 Edition) may be of help. This Comprehensive Guide to Tax Planning is absolutely FREE.

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