``The most serious offence under the Income Tax Act is committed when the employer deducts tax from the salary of the employee, but fails to deposit the same to the government,'' the official says. The gravity of the crime of not depositing tax is indicated by the nature of penalty. For instance, in most other I-T default cases, interest is levied and penalty is leviable. That is the additional interest imposed on a person is compulsory, but penalty is not. On the other hand, prosecution is invited under the I-T Act, in cases where tax is deducted but not deposited.

Let's find out why it's such a serious offence to deduct tax and not deposit it. According to the I-T department, the seriousness of it allis due to several factors. First, the deduction is being made on behalf of someone. Therefore, it's the moral duty of the employer to credit it to the government. Secondly, once the tax is deducted, it becomes government money. So by not depositing the tax deducted, the employer is denying the government its money. And finally, since the tax deducted is not being deposited, the employer is not in a position to issue the TDS (tax deducted at source) certificate. As a result, employees in such an organisation cannot take the benefits of the tax deducted while filing their annual returns.

In effect, the offence is manifold when the employer deducts income tax but does not deposit the same. The crime is a combination of misuse of funds and denial of benefits to employees. As a direct consequence of that, prosecution is stiff too: Rigorous imprisonment for anything between three months and seven years, along with a fine. However, the time taken to actually prosecute a person or a company, as the case maybe, varies from one month to any number of years. That is, after the offence of not depositing the tax is detected by the I-T department, it usually takes quite long to prosecute the guilty because it's a criminal offence involving all the procedural intricacies. It goes something like this: The I-T department detects that an employer has deducted tax from the salaries of his employees, but has not deposited the same. The case then moves from the assessing officer through the commissioner to the chief commissioner. And after the opinion of the standing council of the I-T department, prosecution is launched in court. Once the case is in court, evidence is required. The evidence is mainly of two kinds--Pay slip of the employees and account books of the employer are needed to show that tax has been deducted at source. The other evidence required is to find out whether tax was at all deductible or not.

The rigour of evidence and the delay in prosecution apart, what is the way by which the I-T department detectssuch irregularities? It's either through the employees of a defaulting company, or through surveys conducted by the I-T department.But even a defaulting party in a case like this can escape prosecution. The modus operandi: Compounding of offence. When an assessee gets to know that he's in the tax net and there's absolutely no way to escape, he applies for compounding of offence. It's basically a steep fee (multiple of the quantum of default) to escape prosecution. The fee is fixed by the ministry, but is negotiable. And the power to compound the offence lies with the chief commissioner of the I-T department.

Talking about detection of default cases, the official says that the coverage by the department is not 100 per cent because of the huge number of companies. Also, the resources available to the department are not enough to go full steam.

But in the cases detected so far, multinational companies have been found to be major income tax offenders. The official adds: ``The MNCs cannot take the pleaof ignorance since they are advised by the best of brains.''

And has the number of companies flouting the income tax rules, such as not depositing the tax deducted, gone up or down over the years? According to the department, the number of those flouting the rules has gone up due to the overall increase in the number of companies, particularly MNCs.

It appears that although the I-T department follows the best systems of the world, the fault lies in implementation. Again, don't blame the department for every wrong, the official says, for the people should be responsible too.

To start with, employees wake up to your rights before it's too late. Don't let your employer take you for granted. And do remember to ask for a TDS certificate. If you don't get it on time, you have reason to believe that your employer is deducting tax from your salary, and sitting on it.