Introduction

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The Income Tax Department (ITD) of India has commenced a 360-degree profiling of high net worth individuals (HNIs) to identify and crack down on tax evaders. This move comes after the government’s recent cut in the highest tax rate on personal income from 42.74% to 39% in the Budget FY24, which was aimed at encouraging HNIs to declare their full income and pay their taxes honestly.

However, the ITD is concerned that the tax cut may not have been enough to deter some HNIs from continuing to evade taxes. As a result, the department has decided to take a more proactive approach by conducting 360-degree profiling of HNIs.

What is 360-degree profiling?

360-degree profiling is a holistic approach to risk assessment that takes into account a wide range of factors, including financial data, lifestyle, and travel patterns. The ITD will use information from various sources, such as the Annual Information Returns (AIRs) filed by banks and other financial institutions, property records, and travel data, to create a comprehensive profile of each HNI.

Once the profiles are complete, the ITD will be able to identify HNIs who are at a higher risk of evading taxes. These HNIs will then be subjected to closer scrutiny, including audits and tax investigations.

Why is 360-degree profiling important?

HNIs are a major source of tax revenue for the government. However, they are also more likely to engage in tax evasion than other taxpayers. This is because HNIs have more complex financial arrangements and are able to exploit loopholes in the tax system.

360-degree profiling will help the ITD to identify and crack down on HNI tax evaders. This will help to ensure that HNIs pay their fair share of taxes and contribute to the government’s revenue.

How will 360-degree profiling be implemented?

The ITD has already started collecting data from various sources to create profiles of HNIs. The department is also developing sophisticated algorithms to analyze the data and identify HNIs who are at a higher risk of evading taxes.

Once the profiles are complete, the ITD will begin to scrutinize high-risk HNIs more closely. This may involve conducting audits, seeking additional information, and even launching tax investigations.

What impact will 360-degree profiling have on HNIs?

360-degree profiling is likely to have a significant impact on HNIs. HNIs who are evading taxes will need to be more careful, as they are now at a higher risk of being caught by the ITD.

HNIs who are paying their taxes honestly should not be unduly concerned about 360-degree profiling. However, they may be required to provide the ITD with additional information about their finances, if necessary.

Benefits of 360-degree profiling

360-degree profiling has a number of benefits, including:

  • It will help the ITD to identify and crack down on HNI tax evaders.
  • It will help to ensure that HNIs pay their fair share of taxes.
  • It will increase the government’s tax revenue.
  • It will deter other taxpayers from evading taxes.
  • It will create a more level playing field for all taxpayers.

Challenges of 360-degree profiling

360-degree profiling also poses some challenges, including:

  • It can be expensive and time-consuming to collect and analyze the data required to create comprehensive profiles of HNIs.
  • There is a risk that the ITD may infringe on the privacy of HNIs.
  • The ITD will need to be careful not to target HNIs unfairly or selectively.

Conclusion

360-degree profiling is a powerful tool that can be used to identify and crack down on HNI tax evaders. However, it is important to implement 360-degree profiling in a fair and transparent manner, while also respecting the privacy of taxpayers.

Additional thoughts

The ITD’s decision to commence 360-degree profiling of HNIs is a welcome move. It is a clear signal that the government is serious about cracking down on tax evasion.

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