CAG Flags Errors in Income Tax Assessments and Revenue Loss
Date: December 19, 2024
Category: TAX News
Read Time: 4 Minutes
The Comptroller and Auditor General (CAG) of India has identified widespread errors and omissions in income tax assessments, resulting in an estimated revenue loss of ₹5,728.8 crore to the exchequer. The report, tabled in Parliament on Tuesday, also highlighted lapses in GST compensation audits and significant tax evasion in the distilleries and breweries sector.
Key Findings of the CAG Report
Income Tax Assessment Errors
The CAG report included 504 audit observations related to income tax, which uncovered:
- Errors in the levy of interest.
- Irregular depreciation allowances.
- Incorrect business expense claims.
- Unexplained investments or cash credits.
- Arithmetical errors in income and tax computation.
Tax Effect: These errors collectively resulted in a revenue loss of ₹5,728.8 crore.
GST Compensation Fund Audit Lapses
The report also criticized the government for failing to submit GST compensation fund accounts for the last four years. This delay, despite statutory obligations and repeated recommendations, underscores systemic weaknesses.
The CAG has urged the government to address this issue immediately to ensure compliance.
Tax Evasion in Distilleries and Breweries Sector
Alarmingly, the report identified significant tax evasion in the distilleries and breweries sector, leading to a revenue loss of ₹12,781 crore. This finding emphasizes the urgent need for stricter monitoring of high-revenue industries.
Concerns and Recommendations
Weak Internal Controls
The CAG observed weak internal controls within the income tax department, which contributed to:
- Errors in the levy of interest.
- Irregular tax refunds.
- Incorrect tax assessments.
Recommendations to the CBDT
To address these issues, the report has urged the Central Board of Direct Taxes (CBDT) to:
- Strengthen the reconciliation mechanism for assessment records.
- Implement measures to prevent computational and procedural errors.
- Enhance oversight on tax refunds and deductions to improve accuracy.
Implications for Tax Administration
Revenue Loss and Enforcement Challenges
The errors identified by the CAG present a significant challenge for revenue collection and enforcement.
Compliance and Accountability Issues
The lapses in GST audits and tax assessments highlight the urgent need for improved transparency and accountability within tax administration.
Sector-Specific Monitoring
Given the scale of evasion in the distilleries and breweries sector, tighter monitoring and enforcement mechanisms are necessary for such high-revenue industries.
The CAG report underscores the critical need for systemic reforms to enhance the accuracy and efficiency of India’s tax administration. Addressing these lapses promptly will be essential for building a robust and transparent tax ecosystem.
