Taxman can go back only three years to scrutinise any lapses in small cases

MUMBAI: The finance minister on Monday said that tax officials can only go three years back in time to scrutinise any lapses in tax payment, a step that would help the government control the much feared ‘tax terrorism’.

However, the tax authorities in some special cases can go back up to 10 years.

“In serious tax evasion cases as well as only where Rs 50 lakh or more has been concealed, the assessment can be reopened up to 10-years and that too after the consent of the principal chief commissioner,” said Nirmala Sitharaman.

Currently, tax officials can scrutinise or open assessment of taxes paid up to six years before.

Some tax experts say that most of the large transactions and issues for companies are for more than `50 lakh and this may be a concern.

"One can say the reassessment period for initiation in case of small taxpayers has come down from six years to three years,” said Sameer Gupta, tax markets leader, EY India. “While the tax evasion cases for which threshold have been defined could still be opened up for 10 years, this will be a relief for most small prudent taxpayers as it means they won’t be subjected to reassessment uncertainties for a prolonged period.”

Although, this will also give some relief in merger and acquisition situations, say experts. "The change in regulation around the time limit would mean that the indemnities given for future tax litigation in M&As would go away," said Girish Vanvari, founder of tax advisory firm Transaction Square.

Currently, most buyers in M&A situations want the sellers to give an indemnity for future tax issues.

This is mainly because tax issues in India could arise even a decade later to haunt the new buyer who was not even in the picture in the year when the tax was paid. Tax experts say even in cases where the tax official has a limit of three years, the investigation has to be over within a year or so for the officer to raise a demand within three years.

This would be beneficial for most companies and individuals as well.

Apart from this, other announcements would also ease out some of the existing compliance burden. The government also relaxed the necessity for senior citizens to file tax returns. While this will reduce compliance burden for taxpayers, this could also lead to issues for some, say tax experts.

The finance minister said the government is introducing pre-filled income tax return forms for taxpayers. The tax department would compile the data on their capital gains from mutual funds, shares, interest on fixed deposits and dividend income.