Income Tax Department Rewards for Reporting Tax Evasion: A Comprehensive Guide

The Income Tax Department of India has introduced several reward schemes to encourage individuals to report instances of tax evasion, both within India and abroad. These schemes aim to combat tax evasion by incentivizing whistleblowers with substantial rewards while ensuring the confidentiality of their identities.

The broad details of these schemes, including the provisions under which they operate, key conditions, how to report tax evaders, and the process for claiming rewards are as under:

Overview of the Reward Schemes reporting Tax Evaders

1. Income Tax Informants Reward Scheme, 2018:

This scheme allows individuals to earn rewards up to ₹5 crores for providing actionable information about income tax evasion on income and assets in India and abroad. The scheme is governed by the Income-tax Act, 1961, and the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

2. Benami Transactions Informants Reward Scheme, 2018:

This scheme focuses on benami transactions and offers rewards up to ₹1 crore for reporting such transactions. It operates under the Benami Transactions (Prohibition) Amendment Act, 2016.

Key Conditions and Provisions of Reward Scheme to report cases of Tax Evasion

• Eligibility: Government employees are excluded from participating in these schemes. Information must be submitted in the prescribed format (Annexure-A) to qualify for rewards.
• Confidentiality: The identity of informants and the information they provide are kept confidential by the Income Tax Department.
• Thresholds for Tax Evasion: Substantial tax evasion is defined based on thresholds ranging from ₹1 crore to ₹5 crores, depending on the investigation directorate involved.
• Reward Calculation: The final reward is capped at 5% of the additional taxes levied and realized due to the information provided, subject to a maximum limit of ₹5 crores for foreign income and ₹50 lakhs for domestic income.

How to Report Tax Evaders

1. Submission Format:

Information must be submitted in the prescribed format (Annexure-A) to the designated officers, typically Joint or Additional Commissioners of Investigation Directorates.

2. Information to be submitted through Official Channels:

Submissions must be made through official channels; social media or messaging apps are not accepted.

3. Documentation:

Informants should provide detailed documentation, such as documents, emails, or other relevant materials, to support their claims.

To receive a reward under the Income Tax Informants Reward Scheme, 2018, the following eligibility criteria must be met:

1. Exclusion of Government Employees:

Government employees are not eligible to participate in this scheme. This includes employees of the Central Government, State Government, Union Territory Government, nationalized banks, local authorities, public sector undertakings, and corporations or bodies corporate owned by these entities.

2. Submission Format:

Information must be submitted in the prescribed format, typically Annexure-A, to qualify for a reward. Submissions through other means, such as emails or social media, are not accepted.

3. Substantial Tax Evasion:

The scheme focuses on substantial tax evasion, meaning the information provided must lead to the detection of significant undisclosed income or assets. The thresholds for tax evasion vary, but generally, it involves evasion of ₹1 crore or more.

4. Documentation:

Informants must provide detailed documentation to support their claims, including specific details about the tax evasion and any relevant evidence.

5. Risk and Assistance:

The informant will require to extend the assistance in providing/analysing any information that may be required to finalize the Tax Evasion.

 Quantum of Rewards for reporting Tax Evasion

Interim Rewards:

Informants may receive interim rewards of up to 3% or 1% of the additional taxes levied, depending on the nature of the information.

Final Reward:

The final reward is determined after the assessment becomes final and all appeals or revisions are concluded.

Process to Claim reward for reporting Tax Evasion

To apply for a reward under the Income Tax Informants Reward Scheme, 2018, specific documents are required, although the exact list may vary depending on the nature of the information provided.

Following documents are necessary to claim reward for reporting tax Evader:

Prescribed Application Form:

The information must be submitted in the prescribed format, typically Annexure-A, which includes details about the tax evasion and the informant.

Identity Proof:

While not explicitly mentioned in the context of tax informants, identity proof , proof of address are crucial in most government schemes. This could include documents like a PAN card, Aadhaar card, or other government-authorized ID cards.

Documentation Supporting the Claim:

Detailed documentation, such as documents, emails, or other relevant materials, must be provided to support the claim of tax evasion.

Bank Account Details:

For receiving the reward, informants may need to provide their bank account details, ensuring it is Aadhaar-linked for direct benefit transfer (DBT).

Confidentiality Undertaking:

Informants need to provide an undertaking to maintain confidentiality regarding their involvement in the scheme.

Besides, above the Income Tax Department may ask for any further documents.

Limitations of the Scheme

• Exclusion of Government Employees: Government employees are not eligible to participate in these schemes, which may limit the scope of information gathering.
• Threshold Requirements: The scheme focuses on substantial tax evasion, which means smaller cases might not qualify for rewards.
• Complexity in Documentation: The requirement for detailed documentation in the prescribed format can be challenging for some informants.

The Income Tax Department’s reward schemes encourage public participation in combating tax evasion by offering substantial rewards and ensuring confidentiality.

The Timeline for processing reward

While no timeline to process the reward is stipulated in the Act, based on general practices and timelines observed in similar government schemes, here is a general outline of what might be expected:

1. Submission and Initial Review:

After submitting the information in the prescribed format, it typically takes a few weeks to a few months for the initial review. This involves verifying the authenticity and relevance of the information provided.

2. Investigation and Assessment:

Once the information is deemed actionable, it is forwarded to the relevant investigation directorate for further assessment. This phase can take several months to a year or more, depending on the complexity of the case and the resources available.

3. Tax Assessment and Recovery:

After the investigation, if tax evasion is confirmed, the Income Tax Department will proceed with tax assessments and recovery. This process can also take several months to a few years, depending on the legal proceedings and appeals involved.

4. Reward Calculation and Disbursement:

Once the additional taxes are levied and realized, the reward is calculated and disbursed. This typically occurs after all legal proceedings are concluded and the taxes are recovered.

5. Final Disbursement:

The final reward is usually disbursed after ensuring that all conditions are met and the informant’s identity remains confidential.

In summary, the entire process from submission to final reward disbursement can take anywhere from a year to several years, depending on the complexity of the case and the efficiency of the legal and administrative processes involved.