File I-T returns on time or face jail

This is what the draft Direct Tax Code (DTC), which seeks to replace the Income Tax Act, 1961 proposes.

The draft DTC, while proposing a moderate tax regime, has ruthlessly prescribed a tough regime of stiff penalties and prosecution for non-compliance with tax laws.

The DTC, which will become law once Parliament accords approval, proposes that every tax offence under the Code will be punishable with imprisonment as well as fine.

If individuals are found evading tax, they would face up to seven years imprisonment. The DTC prescribes that a person will be punishable with rigorous imprisonment for a term, which may extend to seven years and with fine, if he willfully attempts in any manner to evade any liability in respect of tax, interest or penalty.

A person will be punishable with rigorous imprisonment for a term, which may extend to two years and with fine, if he fails to furnish in ‘due time’ the return of the tax base, which he is required to furnish under various sections of the Code.

In fact the DTC has listed various tax offences, which are punishable with imprisonment and fine. These include failure to pay tax deducted or collected at source or to pay the Dividend Distribution Tax, submission of false statement, falsification of books or account or documents.

Significantly, the Code also prescribes seven years of imprisonment and with fine for a person who abets or induces another person to make false tax statement.

Summons trial

Though there will be no mandatory minimum term of imprisonment, the maximum term for certain offences will be two years or less and such offences will be prosecuted, adopting the procedure of summons trial.

In the case of offences where the maximum term of imprisonment is more than two years, the offence will be prosecuted adopting the procedure of warrant trial.

Explaining the need for a strong regime of penalties and prosecution for tax offences, the DTC says provisions relating to imposition of penalties for various defaults as contained in the Income Tax Act, 1961, do not support a strong deterrence programme in a moderate tax regime.

“Hence, provisions have been included in the Code that will ensure certainty of punishment upon non-compliance with the tax laws,” the DTC notes.  Making the punishment for tax offences more rigorous, the DTC proposes that the prosecution of an offence under the Code will be in addition to the provisions of any other law providing for prosecution of offences under that law.