Mumbai: A mismatch between what an employer computes and what an employee claims can drag both under the taxman's glare.

The Income Tax (I-T) department is using a fine-tooth comb to nab discrepancies in the tax deducted at source, or TDS, by companies and the declarations by its employees in the annual I-T returns. What's underway is a line-wise reconciliation of the two sets of numbers under different heads - house rent allowance, medical insurance, outgo on home loans, tax saving investments under 80c etc.

Around early December, several companies in Mumbai, Delhi and other big cities were served notices under Section 133C which was introduced in 2014-15, empowering authorities to call for information to verify details. The companies are being asked to either 'confirm the information' or 'furnish a correction statement', two persons aware of the exercise told ET.

The department aims to track cases where tax has escaped with either the company deducting less TDS than it should have or employees claiming refunds through extra investment declarations -- not stated earlier during the year but later included while finalizing the ITRs.

"The section 133C (introduced in 2014-15) has been sparingly used so far. But recently many companies have received notices under this section. This would pave the way for a line-wise verification. It's a smart use of technology by the department with the system making such granular level verification of the reporting by both sides -- the deductors in their withholding tax returns as well as the taxpayers in their ITRs. The department is probably well aware of the limitations -- such an exercise is not feasible manually for covering a large number of taxpayers. So, a system-related verification is being done to identify the gaps," said Rahul Garg, Managing Partner, Asire Consulting, which advices on tax and regulatory matters.

An annexure to the recent round of notices gives a list of employees.

According to Garg, only the right cases must be picked up for scrutiny either at the company level or employees. "This could help in a more cautious approach towards withholding tax compliances with right validations at the level of employers (the deductors), right claims by taxpayers, increase in tax collection, and widening of the tax base through a fair selection of the old and new tax regime for individuals," he said.

The law puts the responsibility on the employer for correctly computing the TDS of persons it hires and reporting it every quarter. But traditionally, the focus of companies has not been closely verifying the declarations by employees; in some cases, employees may not submit the actual documents in time; also, not adequate validation is done by service providers -- several of them are software companies -- to whom companies typically outsource the payroll work.

"This is an effective tool to identify wrong claims. The parties receiving the notices should immediately comply as there is a penalty provision applicable for not replying. If the data required is voluminous, then adjournment should be sought. Parties should not take it lightly," said Rajesh P Shah, partner at the CA firm Jayantilal Thakkar and Company.

Interestingly, if employees make fake claims and the companies endorse them, a gap will not readily show up in the tax office system. But any difference between the two sets of information would be immediately spotted. However, if the tax office picks up a case, chances are it would end up going through the records of all employees.