These bluntly-worded, pre-Christmas communiqués sent out to thousands primarily aim at two categories — wealthy individuals who donated lakhs to charities; and salaried persons who, in their tax returns, claimed multiple deductions or benefits that do not figure in Form 16.
Form 16 is the summary of salary and tax deducted and deposited with the Income Tax (I-T) Department by employers on behalf of employees. According to the terse emails, the processing of I-T returns — and therefore the refunds claimed by these taxpayers — is being kept on hold, either because the permanent account numbers (PAN) of charities are incorrect, or the organisations are not listed under Section 80G of the I-T Act, or refund claims made under the old tax regime “appear to be high compared to the gross salary.”
However, tax practitioners confirm that in several cases, such emails have come despite information provided being accurate. Several taxpayers are flummoxed to find under question their donations to one of the famous south-based foundations focusing on yoga and spiritual growth. A taxpayer can claim deduction of 50% of the qualifying amount.
Unnervingly worded
This amount cannot exceed 50% of the donation to a trust or non-profit registered under Section 80G.
While a December 23 release by tax authorities said the initiative is aimed to guide assessees and enable voluntary compliance, taxpayers, shaken by the assertive tone of the emails, are unsure what they should do next — ignore the communication, or withdraw the benefits claims and revise ITR before the December 31 deadline.
They are also unsure how long they would have to wait for refunds even if they are confident about their ITR numbers and claims.
“A well-intended policy is overshadowed by poor communication. By using accusatory language like ‘false claims’ for risk-flagged donations, the department has unnerved many taxpayers who have complied with the law,” said Mohit Bang, partner at Hyderabad-based CA firm Trivedi & Bang. “We are seeing a trend where even those with valid, well-documented claims are being caught in the net of these automated alerts.”
He said there is a fundamental disconnect when a donation — made through transparent banking channels to a government-vetted institution — is labelled “potentially false,” adding, “To facilitate ease of compliance, the tax department must refine its analytics to reduce false positives. Automated messaging needs to be corrective rather than confrontational, ensuring that honest citizens aren’t penalised with undue anxiety for their transparency.”
The other downside, Bang said, is that refunds are held back for more than four months from the date of filing of returns, and the communication of such discrepancies is coming just a week before the deadline.
Large donations, deductions
Individuals who have donated over `2 lakh are largely the ones to have received the emails, which are not technically notices that appear in the tax portal.
Some of the other reasons given in the emails for temporarily stalling ITR processing include high levels of leave travel allowance, which is incommensurate with amounts reported by employer in Form 16; claims of short-term and long-term capital gains declared in the ITR not seeming to match with Annual Information Statement (AIS) and Taxpayer Information Summary (TIS); disproportionate claim of house rent allowance (HRA); claim of donation higher than the eligible limit.
AIS and TIS, based on taxpayer’s transaction records and filings by various entities, are generated automatically by the department.
“The current reporting mechanism already provides robust checks, with donees obligated to file Form 10 BD and issue donorwise certificates in Form 10BE, which are referenced by taxpayers while filing their returns,” said Ashish Karundia, founder of CA firm Ashish Karundia & Co. “This data is readily available for system-based verification of genuine claims. Similarly, while employers set internal deadlines for investment/deduction declarations, typically around November or December, there is no statutory restriction on claiming valid deductions that were not disclosed to employers within those timelines.”
For many salaried individuals, the mismatch between Form 16 and ITR could be attributed to their inability to share investment details with employers.
“While the intent is positive, the timing of these communications, issued as the year draws to a close, has unsettled many well-intentioned taxpayers. A more effective strategy would have been to engage earlier in the return-filing cycle, enabling taxpayers adequate time to reconcile discrepancies or systematically revise filings. Such advisories should be seen as gentle compliance reminders rather than an implication of misreporting, particularly where claims are legitimate and properly documented,” said Karundia.