Reporting Tax Evasion: Comparative Analysis of Available Remedies in India

Introduction

Tax evasion remains one of the most pressing challenges confronting India’s fiscal administration, systematically depleting the national treasury and constraining governmental capacity to invest in critical infrastructure, education, and social welfare programs. To address this, the government has introduced initiatives that make it easier for citizens to participate in identifying and reporting tax evasion. Prominent measures include the Income Tax Informants Rewards Scheme, 2018, and the digital Tax Evasion Petition portal, reflecting a strong focus on public involvement and technology-driven solutions.

The financial ramifications of tax evasion extend far beyond mere revenue loss. When substantial portions of taxable income remain undeclared, the government faces difficulties in maintaining fiscal balance, ultimately affecting its ability to provide essential services to citizens. Recognizing this critical challenge, the Ministry of Finance has consistently refined its approach to tax compliance enforcement, moving from purely punitive measures toward a more balanced system that combines deterrence with positive reinforcement for those who facilitate the detection of tax evasion.

Understanding Tax Evasion in the Indian Context

Tax evasion, as distinct from tax avoidance, involves the deliberate and illegal concealment of income or assets to reduce tax liability. While tax avoidance utilizes legal loopholes within the existing framework, tax evasion constitutes a criminal offense under the Income Tax Act, 1961.[1] The distinction carries significant legal consequences, with evasion potentially resulting in prosecution, substantial penalties, and imprisonment.

The Indian taxation system operates on the principle of self-assessment, placing considerable responsibility on taxpayers to accurately report their income and assets. However, this system’s effectiveness depends heavily on voluntary compliance, which remains imperfect in practice. Common methods of tax evasion include maintaining unaccounted cash, creating fictitious expenses, underreporting income, claiming illegitimate deductions, and concealing foreign assets and income. Reporting tax evasion is therefore essential to curb these practices, uphold the integrity of the tax system, and ensure that compliant taxpayers are not unfairly burdened.

The Income Tax Informants Rewards Scheme, 2018: A Detailed Examination

The Income Tax Informants Rewards Scheme, 2018 represents a comprehensive revision of the earlier Guidelines for Grant of Rewards to Informants, 2007. This updated scheme reflects the government’s recognition that citizens often possess valuable information about tax evasion but require proper channels and incentives to come forward. The scheme establishes a structured framework for receiving, processing, and rewarding information that leads to the detection and recovery of evaded taxes.

Defining the Informant and Eligibility Criteria

Under this scheme, an individual qualifies as an informant only after furnishing specific information regarding substantial tax evasion through a prescribed written statement. The scheme specifically requires submission in Annexure-A format, and successful applicants receive a unique Informant Code from designated authorities. This formal process distinguishes legitimate informants from casual tipsters and ensures accountability throughout the investigation process.[2]

The scheme explicitly clarifies that individuals who provide information through informal channels such as letters, emails, compact discs, WhatsApp messages, text messages, phone calls, social media posts, or newspaper publications cannot claim rewards unless they follow the prescribed procedure. This requirement ensures that authorities can maintain proper documentation, verify the informant’s identity, and establish a clear chain of custody for the information provided.

Procedural Framework for Information Submission

The submission process requires prospective informants to contact specific designated authorities within the Income Tax Department’s Investigation Directorate. These include the Directorate General of Income Tax Investigation, the Principal Director of Income Tax Investigation, or the Joint Director of Income Tax Investigation having jurisdiction over the matter. When an individual approaches the Directorate General or Principal Director, these officials direct them to the appropriate Joint Director for formal submission.

The jurisdictional Joint Director evaluates whether the information appears prima facie actionable. If satisfied, the Joint Director requires the informant to appear personally and submit information using the prescribed Annexure-A format. This personal appearance requirement serves multiple purposes: it allows authorities to assess the informant’s credibility, clarify ambiguous information, and emphasize the serious nature of providing false information. The Principal Director’s decision regarding Informant Code allotment carries finality, providing certainty to the process while minimizing bureaucratic delays.

For foreign nationals possessing information about undisclosed foreign income or assets of persons liable to taxation in India, the scheme establishes a separate channel through the Member (Investigation) of the Central Board of Direct Taxes in New Delhi. This provision recognizes the increasing prevalence of offshore tax evasion and the need for international cooperation in combating such practices.

Group Informants and Multiple Submissions

The scheme accommodates situations where multiple individuals collaborate to provide information. In such cases, all participating informants must jointly complete and sign the prescribed forms and statements. Each receives a separate Informant Code, though authorities disburse rewards in equal proportions unless the informants specify alternative arrangements at the time of information submission. This flexibility encourages collaborative information gathering while maintaining individual accountability.

When a single informant possesses information regarding multiple unrelated cases, the scheme requires separate Annexure-A submissions for each group of cases. However, the informant retains the same Informant Code across all submissions, simplifying administrative tracking and ensuring consistent identity verification. Informants bear an obligation to render assistance as required by investigating officers, recognizing that successful prosecution often depends on the informant’s continued cooperation during the investigation and potential legal proceedings.

Reward Structure and Payment Mechanisms

The scheme establishes a two-tiered reward structure comprising interim and final rewards. This bifurcated approach acknowledges the extended timeframes involved in tax assessment and appeals while providing informants with tangible recognition for their contribution relatively early in the process.

Interim Rewards Under the Black Money Act, 2015

For information leading to the detection of undisclosed foreign income or assets under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, informants may receive interim rewards up to three percent of additional taxes levied that directly result from their information. The scheme caps this interim reward at five million rupees (fifty lakh rupees) per information submission when the competent authority determines that the assessment will likely withstand appeal and taxes will probably be recovered.[3]

Payment of this interim reward occurs within four months of completing assessments under subsections three or four of Section 10 of the Black Money Act. This relatively prompt payment timeline acknowledges the informant’s contribution while the case remains fresh and demonstrates the government’s commitment to honoring its obligations under the scheme.

Interim Rewards Under the Income Tax Act, 1961

For information concerning undisclosed income detectable under the Income Tax Act, 1961, the scheme provides interim rewards up to one percent of additional realizable taxes directly attributable to the informant’s information, subject to a ceiling of one million rupees (ten lakh rupees). The scheme recognizes that certain cases involve particularly significant amounts, specifically addressing situations where informant information leads to cash seizures exceeding ten million rupees (one crore rupees) during search and seizure operations under Section 132 of the Income Tax Act. In such cases, the interim reward ceiling increases to one and a half million rupees (fifteen lakh rupees), though the rate remains at one percent.

The competent authority must satisfy itself that additional taxes on detected income are likely to be recovered before sanctioning interim rewards. Authorities forward interim reward payments within four months of the Investigation Directorate submitting its final investigation report to the Assessing Officer in cases involving undisclosed income or assets liable under the Income Tax Act.

Final Rewards and Maximum Limits

The scheme’s final reward provisions become operative after assessments attain finality through the exhaustion of appeals, revisions, and other legal remedies on issues relevant to reward determination. For information regarding undisclosed income or assets under the Income Tax Act, 1961, the maximum final reward reaches five percent of additional taxes levied and realized that directly stem from the informant’s information. The scheme caps this final reward at five million rupees (fifty lakh rupees).

An important limitation applies when informants claim rewards for both income tax evasion and benami properties based on substantially similar facts. If such informants qualify for rewards under both the Income Tax Informants Reward Scheme, 2018 and the Benami Transactions Informants Reward Scheme, 2018, their combined rewards under both schemes cannot exceed ten million rupees (one crore rupees). This provision prevents double compensation for essentially the same information while maintaining generous overall reward limits.

All reward-granting authorities endeavor to disburse final rewards within six months of fulfilling the scheme’s prescribed conditions. This timeline balances administrative efficiency with the complexity inherent in finalizing tax assessments and ensuring complete tax recovery.

Factors Influencing Reward Determination

The scheme grants authorities considerable discretion in determining specific reward amounts within the prescribed limits. Several factors guide this discretionary determination, ensuring that rewards appropriately reflect each informant’s contribution. Authorities consider the accuracy and precision of furnished information, recognizing that detailed, well-documented submissions significantly reduce investigation time and resources. The usefulness of provided information, including supporting documents, constitutes another critical factor, as does the extent and nature of assistance rendered by the informant throughout the detection process.

For final rewards, authorities heavily weigh the amount of additional taxes levied and realized that directly result from the informant’s information. The scheme also considers risks undertaken, troubles endured, and expenses incurred by informants in securing and furnishing information, acknowledging that some individuals face considerable personal or professional jeopardy when exposing tax evasion.

Circumstances Precluding Reward Eligibility

The scheme identifies specific circumstances under which informants forfeit reward eligibility. These exclusions protect the scheme’s integrity and ensure that rewards serve their intended purpose of facilitating genuine tax evasion detection. Informants who fail to provide information according to the scheme’s prescribed procedures or who do not fulfill the scheme’s terms and conditions cannot claim rewards.

Information that proves vague, non-specific, or of a general nature does not qualify for rewards, as such information rarely leads to concrete investigative outcomes. Similarly, information already available to the Income Tax Department holds no reward value, preventing individuals from attempting to profit from publicly available or previously reported information. The scheme explicitly excludes information received through intermediary organizations rather than directly from informants, and cases where additional taxes on detected undisclosed income cannot be directly attributed to the informant’s information do not qualify for rewards.

A particularly important exclusion applies when the Income Tax Department obtains evidence that the informant or their authorized representative has shared the information with other entities, agencies, or media outlets. This provision protects ongoing investigations from premature disclosure while discouraging informants from leveraging their information for purposes beyond the scheme’s scope. Finally, the scheme does not provide rewards for incidental or collateral benefits accruing to revenue in cases unrelated to the specific information furnished.

Legal Nature of Rewards and Limited Recourse

The scheme characterizes rewards as ex-gratia payments granted at the absolute discretion of competent authorities, subject to the scheme’s provisions. The competent authority’s decision regarding rewards carries finality and remains insulated from litigation, appeals, adjudication, and arbitration, except for limited review provisions within the scheme itself. This finality ensures administrative efficiency and prevents reward disputes from consuming disproportionate judicial resources.

The Tax Evasion Petition Portal: Digital Innovation in Tax Compliance

Recognizing the need for accessible, technology-enabled reporting mechanisms, the Central Board of Direct Taxes launched a dedicated automated portal on the Income Tax Department’s e-filing website to receive and process tax evasion complaints. This portal accepts complaints regarding tax evasion, foreign undisclosed assets, and benami properties, significantly lowering the barrier to reporting suspected violations.[4]

Filing Procedures and Accessibility

Citizens access the portal through the Income Tax Department’s e-filing website, where they find the submission link under “Submit Tax Evasion Petition or Benami Property holding.” The system accommodates both existing Permanent Account Number or Aadhaar holders and individuals possessing neither identification credential, ensuring that lack of formal identification does not prevent concerned citizens from reporting suspected tax evasion.

During the filing process, complainants choose whether they wish to file a simple complaint without claiming rewards or whether they intend to become informers seeking rewards under the applicable schemes. This choice allows individuals motivated purely by civic duty to report violations without engaging with the more complex reward claim process, while simultaneously providing a pathway for those who wish to be formally recognized and compensated for their information.

After completing one-time password-based validation using mobile numbers or email addresses, complainants can file complaints regarding violations of the Income Tax Act, 1961, the Black Money (Undisclosed Foreign Assets and Income) Imposition of Tax Act, 2015, or the Prevention of Benami Transactions Act as amended. The portal provides three separate forms tailored to each violation type: Form-1 addresses tax evasion complaints, Form-2 handles undisclosed foreign assets, and Form-3 deals with benami properties and transactions.

Upon successful complaint submission, the Department allots a unique identification number, enabling complainants to track their complaint’s status through the Department’s website. This transparency feature represents a significant advancement over earlier systems where complainants received no feedback regarding their submissions.

Distinguishing Features from the Informants Reward Scheme

While both mechanisms serve the common goal of detecting and preventing tax evasion, important distinctions exist between the Tax Evasion Petition portal and the Informants Reward Scheme, 2018. The portal emphasizes accessibility and ease of use, permitting anonymous or identified complaints without the formal procedures required under the Informants Reward Scheme. This lower barrier to entry encourages reporting tax evasion from individuals who possess relevant information but may be reluctant to engage in the more formal informant process.

The Informants Reward Scheme requires personal appearance before designated Investigation Directorate officials, submission of detailed prescribed forms, and allocation of formal Informant Codes. This structured approach ensures accountability and facilitates the informant’s ongoing involvement in the investigation process. In contrast, the Tax Evasion Petition portal accepts complaints electronically without requiring personal appearance, making it more suitable for individuals seeking to report suspected violations without extensive personal involvement.

Applicability of the Right to Information Act

The intersection between tax evasion reporting mechanisms and the Right to Information Act, 2005 presents complex questions regarding transparency and confidentiality. The Delhi High Court addressed this issue in the case of Principal Director, Income Tax v. Rajiv Yaduvansh, holding that information regarding investigations conducted by the Directorate General of Income Tax (Investigation) concerning Tax Evasion Petitions need not be communicated to complainants, as this office falls outside the Right to Information Act’s purview.[5]

The Court further observed in Shri Brij Ballabh Singh v. DGIT (Investigation), Lucknow that complete disclosure of Tax Evasion Petition outcomes could be misused, permitting authorities to provide only broad outcomes when requested. This balanced approach protects ongoing investigations and taxpayer confidentiality while providing complainants with general information about their complaint’s disposition when specifically directed by courts.

Individuals can file Right to Information applications seeking the status of Tax Evasion Petitions and potentially information about reward amounts. However, the Informants Reward Scheme, 2018 operates under different transparency norms. The Central Board of Direct Taxes and Income Tax Department do not provide feedback or updates on received information or subsequent actions, citing confidentiality provisions under Section 138 of the Income Tax Act, 1961 and Section 84 of the Black Money Act, 2015 read with Section 138 of the Income Tax Act.[6]

The Directorates General of Income Tax (Investigation) enjoy exemption from providing information under Section 24 of the Right to Information Act, 2005 read with its Second Schedule. This exemption recognizes that premature disclosure of investigation details could compromise ongoing inquiries and alert suspected tax evaders, potentially enabling them to conceal evidence or transfer assets.

Potential for Administrative Discretion and Systemic Challenges

While both mechanisms establish structured frameworks for reporting and investigating tax evasion, certain provisions grant authorities significant discretion that could potentially affect outcomes. Under the Informants Reward Scheme, 2018, the Joint Director of Income Tax (Investigation) can refer matters to the Principal Director when the informant’s antecedents, past information quality, or conduct justify not taking cognizance of furnished information. With the Principal Director’s approval, the Joint Director may ignore the information entirely.[7]

This discretionary power, while potentially necessary to filter frivolous or malicious complaints, creates the possibility that authorities might decline to act on legitimate information for reasons unrelated to its merit. The inability to invoke Right to Information Act scrutiny for decisions made under the Informants Reward Scheme further compounds this concern, as informants lack external mechanisms to challenge decisions to disregard their information.

The Tax Evasion Petition portal, by contrast, provides greater procedural transparency through its complaint tracking system and general accessibility to Right to Information Act inquiries when judicially directed. This structural difference suggests that the portal may offer more accountability for complainants, though both systems ultimately depend on the investigating authorities’ good faith and diligence.

Liability for False Information

Both mechanisms recognize the serious harm that false or malicious complaints can cause to innocent taxpayers and the administrative burden such complaints impose on investigating authorities. The Informants Reward Scheme explicitly warns that furnishing false information, evidence, or statements constitutes an offense, subjecting violators to prosecution. This provision serves both as a deterrent against frivolous complaints and as a legal safeguard for taxpayers falsely accused of evasion.[8]

The threat of prosecution for false reporting balances the generous rewards available for genuine information, ensuring that individuals carefully verify information accuracy before submission. This balance protects the scheme’s integrity while maintaining sufficient incentives for legitimate whistleblowers to come forward despite potential personal or professional risks.

Comparative Analysis and Effectiveness Assessment

Examining both mechanisms reveals complementary strengths and limitations. The Informants Reward Scheme offers substantial financial incentives reaching up to five million rupees under certain circumstances, potentially motivating individuals with access to detailed information about significant tax evasion to undertake the risks and efforts involved in formal reporting. The scheme’s structured approach, including personal appearances and ongoing assistance requirements, ensures that authorities receive high-quality, actionable information supported by individuals willing to participate in investigations.

However, this same formality may deter casual observers or individuals with limited information who nonetheless observe suspicious activities warranting investigation. The requirement for personal appearance and ongoing involvement may particularly discourage reporting by individuals fearing retaliation or those lacking confidence in their information’s completeness.

The Tax Evasion Petition portal addresses these limitations by providing an accessible, user-friendly platform requiring minimal commitment from complainants. Its digital nature permits rapid information submission without the procedural complexities of the Informants Reward Scheme. The complaint tracking feature provides transparency, allowing complainants to monitor their submission’s progress and potentially obtain status updates through Right to Information requests when appropriate.

Nevertheless, the portal’s ease of use may result in numerous non-specific or inadequately documented complaints requiring substantial resources to evaluate. Without the personal accountability mechanisms built into the Informants Reward Scheme, the portal may receive a higher proportion of unreliable information, potentially straining investigative resources.

From a policy perspective, the Tax Evasion Petition portal appears more democratic and inclusive, enabling broader civic participation in tax enforcement regardless of the complainant’s willingness or ability to engage in formal informant procedures. Its tracking mechanisms and relative transparency also provide better accountability, potentially reducing the risk that authorities might ignore credible complaints for improper reasons.

Conclusion

India’s dual approach to tax evasion reporting through the Informants Reward Scheme, 2018 and the Tax Evasion Petition portal reflects a sophisticated understanding of the varied motivations, capabilities, and risk tolerances among potential reporters. The Informants Reward Scheme caters to individuals possessing detailed, actionable information and willing to engage deeply in the investigation process in exchange for potentially substantial rewards. The Tax Evasion Petition portal serves citizens seeking to report suspected violations without the commitment level required under the formal scheme.

Both mechanisms represent significant improvements over earlier approaches, offering structured channels for public participation in tax enforcement while protecting informants’ identities and interests. However, the systems’ ultimate effectiveness depends on authorities’ diligence, good faith, and commitment to investigating reported violations regardless of the reporting mechanism chosen.

The comparative advantages of the Tax Evasion Petition portal in terms of accessibility, transparency, and accountability suggest it may prove more effective in encouraging widespread reporting and ensuring that authorities act on credible information. Nevertheless, the Informants Reward Scheme’s substantial financial incentives remain crucial for motivating high-risk whistleblowing in cases involving substantial evasion, particularly where informants face significant personal or professional consequences for coming forward.

As tax evasion methodologies continue evolving, these mechanisms will require ongoing refinement to maintain their effectiveness. Future enhancements might include greater transparency in reward determination under the Informants Reward Scheme, enhanced protection mechanisms for informants, and more robust accountability measures ensuring that authorities thoroughly investigate all credible complaints regardless of the reporting channel utilized. Only through continuous improvement and vigilant administration can these systems fulfill their potential to substantially reduce tax evasion and enhance India’s fiscal capacity.

References

[1] Income Tax Act, 1961, Government of India. 

[2] Income Tax Informants Rewards Scheme, 2018, Central Board of Direct Taxes, Government of India. 

[3] Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, Government of India. Available at: https://www.indiacode.nic.in/handle/123456789/2088 

[4] Central Board of Direct Taxes, “E-Portal for Tax Evasion Petitions,” Income Tax Department. 

[5] Principal Director, Income Tax v. Rajiv Yaduvansh, [2021] 125 taxmann.com 100 (Delhi High Court). 

[6] Right to Information Act, 2005, Government of India. 

[7] Central Board of Direct Taxes Letter F.No.292/62/2012-IT (INV.III)/26, dated 23-4-2018, regarding Income Tax Informants Rewards Scheme, 2018. 

[8] Indian Penal Code, 1860, Sections 177-191 (Offences relating to false evidence). 

[9] Prevention of Benami Property Transactions Act, 1988 (as amended in 2016), Government of India. 

Authorized by Prapti Bhatt