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ICAI says verify every return….

Posted by  in January 14th   

Friends, the ICAI recently submitted a pre-budget memorandum to the government. The Insitute recomends/ advices the Government on various tax related matters through its pre-budget memorandum.

Few significant recomendations made by ICAI this time as as mentioned below :-


1) Firstly, The Institute of Chartered Accountants of India (ICAI) wants the tax department to verify every income-tax return saying that 98 per cent returns are never examined. The work, it says, can be outsourced. But, dont you people think that outsourcing this work may lead to the leaking or loosing of the confidential data of our clients?????

2)To widen the tax base, ICAI advocated that the tax department can track people who are out of the tax net by asking banks to furnish details of bank accounts for which PAN details have not been submitted but their balances are above a certain limit.

3) ICAI advocated that corporates should be allowed to set up educational institutes. Now, only trust and cooperative societies are allowed to run educational institutes and these are not taxed on their income. Many private benefactors run eudcational institutes as a business entity in the garb of trust and societies to save the tax. If the restriction is removed on corporates, the finance minister can open new avenues by taxing them on the schools n colleges set.

4) Also, the ICAI is again and again, years after years recomending the government to tax the farm and agricultural income and the suggestion seems to be falling on the deaf ears. What may be the reason for it?? Is it because most of the parliamentarians are benefactors of huge amount of agricultural or farm income or is it because of the fear for loosing the vote bank???

I invite a debate and discussion on the subject from all the members of the forum.

Madhur Khandelia

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8 Comments

rahul Said,
January 14th, 2006 @5:53 pm  

I agree with all the recomandations made by ICAI..

1. this is not fair that only 2 % returns to be taken for scruiny and most of balance are not even examined.. It is duty of every citizen to pay proper taxes..To save tax one shud go for Tax Planning and not Tax Avoidance.. Every return should shud be checked for its correctness and trueness. and outsourcing doesnt create a doubt on confidentiality.. nowdays we have to put trust on outsourcing industry.. ever credit/debit PINs are outsourced by most banks..

2. Again a welcome step.. noone shud be allowed to hide his income by any bad means.

3. Corporates if allowed can provide better educational facilities and would be beneficial for society as a whole..

4. Taxation of Agricultural Income is difficult because of lack of political will.. This provsion only benefits Big farmers who obviously can afford and shud pay prpoer taxes.

mygif
ankit Said,
January 14th, 2006 @10:30 pm  

Well,Im too naive at present to comment on what ICAI has to recommend to the Finanace Minister for the Budget,…but still I’l do that.
1)Im not sure whether examining all the returns is a good move because as expected,the work will have to be outsourced,and outsourcing will increase the cost many times;the revenue though,won’t increase in that proportion(as increase in return examination wont increase revenue,several further procedures will have to be followed to increase the revenue).
I don’t think that leakage of financial information is of much relevance.The logic is simple.People dont want their financial information being leaked majorly because they are scared of the tax officials,and when the information is being leaked/routed through the tax officials,i dont think that people will have anyone else to get frightened of.

2)Income Tax (and also the other tax departments) keep a close watch on all the Bank Accounts through their Investigation Wings.Recently,Amendments like “Annual Information Return” and “Banking Cash Transaction Tax” have been introduced to shift the onus on the Banks to keep a track record of the bank accounts,& furnish inforamtion to the tax officials.
So,Im wary about this recommendation as well.

3)Regarding the 3rd recommendation,I din’t exactly got what they mean,but I suppose what ICAI means to say is that a “Company” must be allowed to run schools.That,it should not be necessary to form a society/trust to run a school.
With this interpretation in mind,I would say that in a knowledge driven economy like India,it would be FOOLISH to impose tax on education,and that too on BASIC EDUCATION.The whole World at large is moving towards “FREE BASIC EDUCATION”(Countries like Germany have it in place from years.Even India is moving towards the same system through Govt. Schools…Infact,for your information,..FEW PANCHAYATS ACTUALLY “PAY” TO THE PARENTS IF THEY SEND THEIR WARDS TO SCHOOL….& this model has been a fair success.)
Its hard to believe how ICAI has recommended this point,….if it actually has.Moreover,there are many corporates already who run educational institutions through trusts etc.Prominent being the Birlas,the Goenkas,the Tatas,the Ambanis …and the list goes on.
Government is on a look out for funds to increase their spending on education,(remember,you pay education cess for it)and ICAI is recommending tax on educational institutions!(if it actually is.).
Education being one of the seven major points of the CMP(Common Minimum Programmne)
which the UPA Govt. is going to concentrate on.
The Govt. cannot impose tax on all the educational institutions,and it’l be of no use to tax such just “companies”…as these corporate houses run educational institutions through trusts etc.
With such issues,I very much doubt any imposition, of any tax,whatsoever,on educational institution.

4)Lastly,as Madhur said,ICAI has been trying time and again,and has failed to convince the Govt. to tax agricultural income;and as I foresee,it’l fail this time too.
Its not that farmers dont have money to pay tax.There’s a large section of big farmers/zamindars who are richer than most of us,and can very well afford to pay more taxes than us.But the major population of our country still relies on agriculture as their livelihood . Taxing agricultural income would give an “impression” of taxing all of them ,and not just the rich farmers.Their could be a “huge” loss of the vote bank.Atleast,the UPA Govt. can’t do it in recent years.(Infact,no govt. would do it in coming years).
It would be more than enough if the State Govts doesnt give “free power” to the farmers and the Banks are able to recover their “huge NPAs” from them.Everybody would be more than satisfied…(except ofcourse, the farmers)

Abe ye kya hua,…I seem to disagree with all the above recommendations of ICAI?!?

mygif
Madhur Said,
January 15th, 2006 @3:55 pm  

My Dear Ankit,

ICAI is not recomending to impose tax on education. I agree that in india literacy rate is very low and govt is try its best to provide free education too. You must be aware that nowadays most of the educational institutes are nothing but money minting entities. In the grab of trusts and societies, they are playing with the law. Most of the schools are run as private entity which chare voluminous fees and extract huge money from the parents in the name of building fund or any other fund. This money or the profit earned by most of these so called trusts or societies are syphoned of by the trustees or the promoters. I dont say that all the educational institutes are interested only in making money but most of them are. And what ICAI has suggested is very logical. When these institutes are making money and are run as businesses why not coporates be allowed to run them. This would generate more revenue plus whn corporates enter these field, the quality of education provied would be much better.

Further, on your contention that taxing farm income woudl tantamount to taxing all the farmers including the poorer farmers is wrong. Government can definitly make some policies in this regard if it intents to tax the farm income. Goverment can tax only those who are rich farmers…maybe they can leave them who earn less than 2 lacs per year..or can draft any such other modality. But i too dont think that this would happen on account of lack of political will.

Madhur Khandelia

mygif
shankar Said,
January 15th, 2006 @7:37 pm  

first of all i would like 2 say thanks madhur for giving such a important information.
i strongly agree with the view of ICAI just because by in this step atleast our return ll be processed in a right manner. i think befor this generally pepole like ‘ITO and teir sub-ordinate who intially process our retuns dont have that much of knowledge which also may be reasons for fruther scrutiny and other assesment processing. if our Govt. is planing 2 take the help of CA by the any mode than it ll drastically help to our client. Govt. can process the return in a more systematically.

It ll also increase the scop of CA becoz now every person as they knew that initially processor of the returns did’t have much knowledge abt taxation. so now they have 2 come before CA’s for verifying the same for flling of returns for to save / protact him/her self for future procedings.

mygif
ankit Said,
January 17th, 2006 @12:20 am  

dearest of all Madhur,:-)
take a second reading of my post,…
I said:-
1)”Corporates are already in the “business” of running educational institutions.”
and the simple logic of not taxing the educational institution is the “trickle down theory”,i.e.,Whatever is imposed on educational instituions,will come down to the students in the form of hike in fees.Since education,nowadays,is no less than a commodity which is sold in the “market”,the consumer has to bear the burden.
Just try to think how,practically,can the tax be levied on the “money making” educational institution,and you’l realise, that its not possible to tax them.

2)Secondly,I said that taxing rich farmers would give an “impression”( inverted commas were used in the first post also) that tax is being levied on the farmers “at large”..I din’t say that it would “tantamount” to taxing all the farmers.Also,the opposition will blow it out of proportion to oust the govt. who does it.Least to say,if I were a politician in the govt.,I wouldnt even think of doing it at present stage of our economy.My govt. might be kicked out bcoz of this one single move!
So,i stick to what i said in my first post….until, koi kuch aur convincing bole…..:-)

mygif
Madhur Said,
January 17th, 2006 @7:58 pm  

Dear Ankit,

I knw u r a smart guy…so if u become a politician…(chances of whc are very less) m sure u too wont tax the farmers…and this is the reason why this sector has not been taxed…”lack of political will my dear”

But now for a while…leave ur political mind aside and put on the shoes of of CA and think like a profeesional and say….is ICAI right in suggesting such taxing measures…both for the educational institutes and farmers.

And your contention that taxing the educational institutes wud mean higher education cost for students is not truly right. Education is not imparted nowdays…it is SOLD…u r right in saying tht it is a commodity nowadays. So, wht ICAI has sugested is to allow corporates to set up educational institutes…

Now by doing this, the onus would shift on to corporates whether they wud want to set up such institutes or not and whether they are able to provide quality education and at a cheaper cost. If they are able to do so they would survive. This would infuse competition my dear…and u being a professional can surely appreciate wht competition and equal playing feild can do.

Even at the present scenario, whn trusts n societies are providing education, u can see that the cost of education is soo high…and all the money is put into the promoters and the trustees kitty and tht too without paying any tax. Over the years, people have exploited the system by setting trusts for education jus to earn TAX -FREE income…wht do u say ankit?? Jus giving you food for thought….think about it…..does that convince you.???

Just think as a professional…whether what ICAI has suggested is right or not?? ICAI’s job is to advise the Govt thru its pre-budget memorandum. To implement it or not is a perogative of the Govt-in-power

mygif
ankit Said,
January 18th, 2006 @10:19 pm  

“there are many corporates already who run educational institutions through trusts etc.Prominent being the Birlas,the Goenkas,the Tatas,the Ambanis …and the list goes on.”
This was what i wrote in my 1st post of this blog.I reiterated the same thing in my 2nd post as well.,which is reproduced as under:-
“take a second reading of my post,…
I said:-
1)Corporates are already in the “business” of running educational institutions.”

& Im repeating it in my 3rd post as well…”CORPORATES ARE ALREADY RUNNING EDUCATIONAL INSTITUTIONS”…through trusts,societies etc.
Im confused..what you mean to say by saying that “corporates should be allowed to run edu. inst.”
If you mean that a “Company” should be allowed and there should not be a need to form a trust or a society,….let me tell you,there’s no need for this,…as the govt. can tax the “money makers” in their form of trusts,societies as well.
I’l elaborate more.
Whether it is a trust or a society or a Company ,which is running an educational institution,it is always possible to tax any of these or “not tax” any of these.It wont make a difference what entity is running the edu. inst.
Now,the debate is,whether these entities should be taxed or not.
You talked about 1)competition,and (2)cheaper cost.
Take a look around the society.
Is there less competition in th education industry today?……I dont think so…Its a fiercely competitive business.(also a very lucrative one).
Regarding “cheaper cost”…cost cutting is very much possible without imposing any tax.Cost cutting is a direct result of competition….which surely prevails in the education industry today..
Im not able to understand,how imposing a tax would make the “money making” educational institutions to cut their costs(which according to you,they would not do now),rather than shifting the burden of ‘their increased cost’ on the consumer,i.e.,the students.
Also,
Regarding the farmers,..call it the political will or something else,its hard to impose tax on agricultural income (political will is The Will required to make Any law, in Any Country.)
& I dont know how one thinks like a “Professional”…..but as i think,its “foolish” to advise anything, which you know, is less likely to be accepted or welcomed.
An advise should be made with an intent of being accepted and incorporated,and not for a mere fulfilment of a tradition or for the sake of it to be made….
& finally,…dont you think that my chances of being a politician is less ,..you just might see me in the Congress, 20 years down the line…:-)

mygif
Eskimosik Said,
November 20th, 2007 @9:28 am  

Hi

What do you think about this? When it happens?

mygif

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