The nightmare of frauds in India doesn’t seem to end. Following a slew of bank frauds unearthed last month, the country’s income-tax department has brought to light a Rs3,000 crore ($461 million) scam.
The government has found that at least 447 companies, which taxed employees’ incomes by over Rs3,000 crore, failed to deposit the amount with the government. The funds collected as tax deducted at source (TDS) may have been used for other business purposes, a senior finance ministry official said.
“They (the companies) deducted tax, but did not deposit it in the government treasury, which is basically a criminal offence. It is very much prosecutable. We may be contemplating (criminal) prosecution in some cases. It’s premature to say how many warrants we intend to issue,” the official told Quartz.
TDS is the tax collected from salaried employees by their companies on behalf of the government. According to the Indian Income Tax Act (pdf), entities that fail to deposit TDS can face jail terms of between three months and seven years, besides the penalty they must pay.
A probe is currently on and the government may decide to add charges of criminal breach of trust, the tax official added.
Entities involved in the scam include a large construction company, which misappropriated around Rs100 crore, and a multinational IT firm that has not deposited Rs11 crore in TDS collected with the government, according to The Times of India newspaper.
That so many companies were able to circumvent the system goes to show that the government needs to put stronger checks in place, Sunil Jain, a senior corporate lawyer said.
“A number of steps have been taken in the past to make the systems related to tax accounting electronic and there’s been teething trouble. But when such gaps emerge, it shows we need to improve our IT and manual processing systems,” Jain said.