The simplicity of the income tax return form and widening of tax net are promises made by all finance ministers in the past. However, the two-page form, introduced in 2009, has undergone several changes and remains far from being simple.
Taxpayers’ backlash over the proposed 14-page income tax return form for assessment year 2015-16 earlier this month forced the government to back-peddle with assurances of a review of the new form, but not without drawing attention to an issue that taxpayers have been raising over recent years without adequate redressal — the increasing complexities in the income tax return (ITR) forms.
While the introduction of e-filing revolutionised the experience of filing I-T returns, the ever-growing compliance requirement threatens to dwindle the gains made by the introduction of tax filing over the net, an apprehension summed up by Shalini Singh, a Gurgaon-based HR professional. “Tax-return filing used to be a very cumbersome exercise, more so if one includes the mad rush to submit it at the centres by July 31. E-filing made return filing a smooth process but now I’m apprehensive about the new changes proposed in the form. It looks that the process will become cumbersome again,” she said.
In its efforts to corner those using black money, a highly political issue, governments over the last few years have chosen to become more intrusive in getting taxpayers’ information. However, these measures have only been successful in, as Daksha Baxi, partner, Khaitan and Co, puts it, “making the filing of returns more and more difficult for the taxpayers.” Baxi said that the current system penalises honest taxpayers while those outside the tax net go scot-free and, “even now, after so many years, there is no mechanism to bring into the tax net those who don’t pay tax.”
The “SARAL, simple and user-friendly two-page form” promised by the then finance minister Pranab Mukherjee in July 2009 has become complicated, with tax experts and taxpayers saying that there is nothing “SARAL” (translated into English it means simple) about the ITR forms. In fact, the April 15 notification by the Central Board of Direct Taxes (CBDT) on ITR forms triggered reactions ranging from disbelief to incredulity.
The tax department, according to the fresh proposal, now wanted to know which foreign countries you had travelled to last year and the expenditure incurred on these trips, the number of bank accounts held by you as also the ones that you’d closed last year. As the worried taxpayers called their ITR preparers to make sense of the form that was with “retrospective” effect (since the details pertain to last financial year, taxpayers are unlikely to have kept records sought), the government beat a hasty retreat by withdrawing the notification and finance minister Arun Jaitley subsequently calling a meeting of the industry to hear out their concerns.
“Why can’t the government check that all those who make foreign travels are filing tax returns? That will be a much more effective way of curbing the black money generation. The aim of having a cleaner, neater and efficient tax system is yet to be met. The income tax department should connect the dots and utilise the information it already has. The ITRs have become complicated over the years. It is time that the system is simplified,” Baxi said.
However, Jaitley, on Thursday assured taxpayers that an “extremely simplified” income tax return form will soon replace the controversial 14-page ITR.
THE TAX FORMS
In 2007-08 the government replaced old forms — Form 1, 2, 3, 2D, 2F, 3A and 3B (ranging from 5 pages to 19 pages) — with ITR-1, ITR-2, ITR-3, ITR-4, ITR-5, ITR-6, ITR-7 and ITR 8. Further, in 2009, presenting the first Budget of the UPA-II, Mukherjee announced the introduction of simple forms from 2010-11. Six years on, a comparison of ITR-1, ITR-2 and ITR-4S — the three forms which are mostly filled by salaried individuals subject to certain conditions — shows that additional conditions have been imposed over the years. The department replaced the SARAL form with SAHAJ form (ITR-1) in the assessment year 2011-12.
ITR-1 or SAHAJ form is filed by a salaried individual having one house property or income from other sources (excluding win from lottery and race horses). However, it can’t be filed if the taxpayer has exempt income such as interest from public provident fund, tax-free bonds and dividends more than Rs 5,000 per annum. In that case, salaried individuals have to file ITR-2, which also includes income from capital gains, having more than one house property or wins from lottery.
Kuldip Kumar, partner tax and regulatory services, PwC, said that last year people were facing difficulty in foreign assets account and most of them were not able to file ITR-1 because of the exempt income clause.
CHANGES IN ITR FORMS:
In 2010-11, the ITRs were amended with changes including removal of fringe benefit tax. Later for financial year 2012-13 and AY13-14, salaried individuals who had loss from income from other sources (like dividend), or availed of treaty benefits, or had foreign assets, were not eligible for ITR-1. They had to file ITR-2, a more complicated 9-page form.
The department also made it mandatory for those having income above Rs 5 lakh to file return electronically while they had to fill schedules in ITR-3 and ITR-4 for disclosure of foreign assets and liabilities if income exceeded Rs 25 lakh.
For financial year 2013-14 (AY2014-15), the form started to become more intrusive, with the tax department seeking detailed information about the capital gains exemption claimed, including providing details of the cost of a new house purchased along with the date of purchase; or the amount deposited in capital gains savings account scheme. Details of unclaimed tax deducted at source (TDS) or tax collected at source (TCS) of past years and the amount carried forward also had to be mentioned in the forms. Transactions entered into with entities registered in Cyprus, a non-cooperative jurisdiction, also had to be reported in the new forms (subject to various compliances and reporting the deduction claimed on any expenditures and payment made.)
For taxpayers having a house with more than one owner, the details for the same had to be mentioned in the schedule giving the percentage of co-ownership. All salaried taxpayers were asked to furnish separate details of leave travel allowance and house rent allowance along with other allowances.
The 2015-16 forms, which have been withdrawn, sought Aadhaar card number, details of foreign travels with passport number, name of country, number of times travelled and expenditure; details of utilisation of amount deposited in capital gain account scheme for years preceding the last two assessment years; mandatory tax residency certificate for treaty benefits; details of all bank accounts with bank name, IFSC code, joint holder, among others.
Amit Maheshwari, partner, Ashok Maheshwary and Associates, said that over the years the I-T department has increased the compliance requirement and cost for taxpayers. “The government has said it will review the ITR forms. However, the I-T department needs to realise that not all conditions are applicable for each taxpayer and therefore it should narrow down its search. That has not happened so far. The law provides for annual information return under section 285 to track specific transactions and persons. The department should put that to good use instead of increasing complexities for taxpayers,” Maheshwari added.
An income tax official said that the forms have indeed become complex but for e-filers, they continue to remain ‘manageable’. Amid increasing complexities the calls for better utilisation of Annual Information Return, required to be filed for high value financial transactions, are growing.