Further tightening the screw on shell companies, the government has proposed removing exemption available to firms with tax liability of up to Rs 3,000 from filing income tax (I-T) returns.
The new rule would come in effect from next financial year. The budget has rationalised the I-T Act provision relating to prosecution for failure to furnish returns. Accordingly, the managing director or director in charge of a company during a particular financial year could be liable for prosecution in case of any lapse in filing I-T returns.
"The Income Tax Departments would now track investments by these companies. Also, the focus will be on those firms that show less profit and also those who file I-T returns for the first time," PTI quoted a finance ministry official as saying.
There are around 12 lakh active companies in the country, out of which about 7 lakh are filing their returns, including annual audited report, with the ministry of corporate affairs.
Of this, about 3 lakh companies show 'nil' income.
The Section 276CC of the Income Tax Act provided that if a person willfully fails to furnish in due time the return of income, he shall be punishable with imprisonment and fine.
However, no prosecution could be initiated if the tax liability of an assessee does not exceed Rs 3,000.
The government has amended the provision with effect from April 1, 2018 and removed the exemption available to companies.
"In order to prevent abuse of the said proviso by shell companies or by companies holding benami properties, it is proposed to amend the provisions So as to provide that the said sub-clause shall not apply in respect of a company," it said.
The official quoted above said that as many as 5 lakh are companies not filing returns and they could be a potential source of money laundering.