The Income Tax Department is ramping up its efforts to ensure compliance with tax deduction and collection at source (TDS/TCS) norms. Around 40,000 taxpayers, including both individuals and businesses are under investigation for failing to deduct and deposit taxes properly for the fiscal years 2022-23 and 2023-24, according to a report by the Economic Times. As part of nationwide regulatory action, these taxpayers may face scrutiny for potential defaults in fulfilling their tax obligations.

The Central Board of Direct Taxes (CBDT) has developed a 16-point plan to identify and monitor cases of TDS non-compliance. Along with this, the department’s data analytics team has compiled a list of taxpayers who may have failed to deposit TDS. A senior official told The Economic Times, “We have data from the analytics team, and we will reach out to such taxpayers, initially through intimation, in case they have missed out on depositing tax.”

The authorities will pay special attention to repeat offenders and situations where there is a large discrepancy between the tax deducted and the advance tax paid. They will also closely examine cases where companies regularly update or correct the details of those from whom taxes are deducted. Moreover, businesses with underperforming units or subsidiaries showing negative profit margins in their financial audits will be scrutinized more closely.

The Central Board of Direct Taxes (CBDT) has directed tax officials to carefully examine cases where large disallowances have been made under Section 40(a)(ia) of the Income Tax Act. This section prevents deductions when TDS has not been deducted or paid to the government.

According to an official familiar with the situation, “There is a carrot-and-stick approach; while we have relaxed TDS compliance for honest taxpayers, strict action will be taken against wilful defaulters to make the tax system fair and equitable.”

In the Union Budget 2024, the government made changes to TDS and TCS rules by simplifying tax rates and increasing the threshold limits for deductions. These changes were designed to help honest taxpayers comply more easily. However, officials have emphasized that strict actions will be taken against those deliberately avoiding TDS payments, using data analytics to spot patterns and discrepancies in TDS transactions.