India: Taxmen to Recover Tax Dues from Bank Accounts

India: Taxmen to Recover Tax Dues from Bank Accounts

Bhumesh Verma 21/04/2019 4

The income tax department (IT) is always facing pressure from the government to enhance collections so that the financial deficit running in billions of Rupees can be trimmed. Therefore, it keeps coming up with some or the other new tricks up its sleeve. 

Now, the tax sleuths are getting ready to crack whip on the tax defaulters to recuperate tax payments due from them. 

In order to accomplish the targeted tax collections – IT is channelizing its troops to maximize the recovery of tax collections via deducting the monies due directly from the tax defaulters’ bank accounts.

Recovery of recovering outstanding taxes gets multiplied with the fact that the central government is taking a “generous approach” in relation to Goods and Services Tax collections as most of small/medium scale companies are already reeling under the financial burden.

As per the existing laws, IT has the authority to attach the bank account of a tax defaulter and order the banks to deposit the tax dues into IT designated bank account.

With the inception of special provision in tax laws, IT will be competent to directly deduct the tax dues from tax payers’ banks/debtors. IT was forced to invoke this special provision to amass the tax dues as the tax payers’ banks/debtors failed to acknowledge/respond to tax notices issued to them by IT. 

Notices were also sent to debtors of companies directing them to channelize the (dues owed to the companies) to the IT department bank account rather than paying dues to the companies.

Taking cognizance of the notices, it is the duty of banks to deduct the tax amounts from the tax payer bank account and credit such amount directly into IT bank account – however, Banks/debtors inability to respond to tax notices is the primary reason for the existing course of action taken by IT. 

IT is employing a twin strategy for tax collections – Directly deducting tax dues from tax payer bank account via freezing the account/ Procurement of tax dues from the taxpayer’s debtors.

It is first time that the debtors are being issued notices by the IT - as a consequence, the reputation of many companies/persons is at stake. Initiation of the garnishee proceedings will certainly jeopardize the reputation/business of tax defaulters causing considerably financial/business loss. 

Pursuant to the authority conferred on IT by Section 226(3) of the Income Act - Notices of garnishee proceedings are issued to banks and debtors of tax defaulters. 

Taxpayers should realize the implications of the non-payment of tax on the reputation and business of persons/companies. Defaulting taxpayers may find it very tough to get away from the radar of IT as IT is fully equipped with right tools to hunt down the tax evaders and recuperation the tax dues from the tax defaulters. 

It is high time for taxpayers to pay all tax dues within the prescribed time to escape the prospect of tax collection directly from taxpayer bank account/debtors, given the new drive.

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  • Scott Layton

    This is a strong move by the Indian government

  • Daniel Carroll

    Your IT department is well organised

  • Jack Barton

    Taxmen are smart, they can't be fooled twice.

  • Dean Rogers

    Not all people comply with the rules

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Bhumesh Verma

Legal Expert

Bhumesh is the Managing Partner of Corp Comm Legal, an Indian law firm. He is ranked among the Top 100 Indian corporate lawyers. He is advising domestic and foreign companies on M&A, joint ventures, corporate - commercial issues. Besides, he has written a book on Drafting of Commercial Agreements, has a couple of books in pipeline and trains students and professionals on Drafting Skills and corporate laws. He writes regularly on legal, business & other issues and is a guest faculty lecturer with educational institutes. Bhumesh holds a Bachelor of Laws (LLB) from the University of Delhi and a further qualification in International Law and Legal Studies from College of Law, York.

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