Data exchange between CBDT and CBIC – Implications on taxpayers

by | Dec 18, 2020 | Outlook

This Outlook is to apprise you regarding the Memorandum of Understanding (‘MOU’) executed inter-alia between the Central Board of Direct Taxes (‘CBDT’) and Central Board of Indirect Taxes and Customs (‘CBIC’) for exchange of information. Pertinently, exchange of information between CBDT and CBIC has been facilitated to identify difference in income depicted in Income Tax return vis-à-vis outward supply declared for Indirect Tax compliances.

Recently, the authorities have commenced issuing notices / commencing enquiry to explain such differences and even SCNs are being issued proposing tax demand.

Basis above, taxpayers need to be cognizant of differences between two returns. Inherently, MOU has pushed taxpayers for another reconciliation of Income Tax return with Indirect Tax returns. Further, there is also a possibility of reverse exchange i.e. GST authorities may share available information with Income Tax authorities.

Taxpayers need to handle such proceeding with adequate preparation. There may be several reasons for differences such as:

  • Specific exemptions / abatements granted under Indirect Tax law
  • Liability to pay tax under Reverse Charge mechanism
  • Adoption of accounting principles for Direct Tax purposes like recognition of income on accrual basis etc. 

Taxpayers should ensure that any such differences are duly reconciled well within time to avoid any dispute in future.

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