Income tax department to use analytics to look for discrepancies in bank accounts and select Income Tax Returns for Scrutiny

It’s the first time in the Indian history that the income tax department, India will be using big data analytical tools to seek through the personal bank deposits to differentiate the black money holders from bonafide taxpayers.

Whereas the central government has used huge data analytical tools for corporate tax reporting in few cases in the past, as mentioned above this will be the first time that it will use analytics on such a big scale to sieve through personal taxes.

It’s almost impossible for tax authorities to seek through all the data gathered from banks and evaluate it with other tax related data. Analytics tools are being used to look at discrepancies involved in the account. This would then be scrutinized by expert and experienced tax officials.

Income Tax Department will collate Data collected from Corporates and Individual assessees as well- It is more likely that the tax authorities would collect and compare data from corporate tax and personal tax as well.

Big data analytical tools will compare the tax returns of individuals, tax paid by companies owned by some people and other tax associated data with data collected from banks on how much amount was deposited by individuals.

Notices may be issued after December 2016 if any discrepancy is found- If any discrepancy is found, then these analytical tools will raise a red flag. Tax officials then could issue notices to such individuals based on this after 31^st of December 2016.

The central government will target only doubtful bank deposits. The parliament had passed a bill in the last week to make an amendment in the Section 115BBE of the IT Act. As per section 115 BBE of the Income Tax Act, it sets the mechanism how to tax any unexplained deposits in banks. S per the amendment made in the section 115BBE, tax officials now can tax such deposits at the rate of 60% (plus cess) as against 30% earlier. This will come into force from the 1^st April.  There were few rumors earlier to this amendment that the government was seeking to introduce higher tax rate at about 50 percent to 70 percent on the black money deposited in bank accounts.

Deposit of Upto Rs 2.5 lacs may not be safe- Anyone may be questioned-Industry trackers are saying that lack of mention of a threshold limit in the amendment in the section 115BBE of the Income Tax Act could indicate that everyone who deposited money in banks since April 1, 2016, may be questioned.

Although the tax authorities would minimize questioning bonafide cash depositors, tax officials are seeking to invoke something called limited scrutiny.

The Meaning of Limited Scrutiny: It means only a few questions would be asked regarding the source of deposits in the bank. Nothing else would be scrutinized. However in case where assesse is not able to reply to those questions, the Limited Scrutiny may be converted into full scrutiny by Assessing officer after taking some internal approvals

Related Read- Converting of Limited Scrutiny in Full Scrutiny