By Ratna K and Ankit Agarwal
Budget: With the forthcoming Budget scheduled to be unveiled on 22 July 2024, there is enthusiasm amongst taxpayers that the government may introduce measures to simplify tax filing procedures, in line with its 100-day agenda to tweak the direct tax provisions to rationalize and simplify the process.
By Ratna K and Ankit Agarwal
As India prepares for its Union Budget FY24, expectations are high among taxpayers and experts alike for significant reforms in the realm of tax filing. The process of filing taxes in India has undergone changes with the introduction of pre-filling of information, introduction of Annual Information Statement (AIS), simplification of tax return Forms - ITR 1 and 4. However, taxpayers still perceive the tax filing to be cumbersome and time consuming.
With the forthcoming Budget scheduled to be unveiled on 22 July 2024, there is enthusiasm amongst taxpayers that the government may introduce measures to simplify tax filing procedures, in line with its 100-day agenda to tweak the direct tax provisions to rationalize and simplify the process.
In response to longstanding challenges and feedback from taxpayers, Budget 2024 is expected to introduce several key reforms aimed at simplifying India's tax filing process.
Amidst these reforms, concerns have been raised regarding the reliability and accuracy of pre-filled Income Tax Returns (ITRs). The concept of pre-filled Forms, which auto-populates taxpayers’ information based on data available with government agencies, has faced challenges in ensuring completeness and correctness. Issues such as mismatches in income data, discrepancies in deductions claimed, unavailability of salary income details, quarterly capital gains data and previous year information in the pre-filled Forms and delays in updating taxpayer information including tax payment have been reported, causing confusion and frustration among taxpayers. Given that salary data is available upon filing of the relevant Form by employers and the data on sale and purchase of capital assets are populated in AIS, the pre-filled utilities should be structured to capture information available with the tax department, onto the tax Forms, to ease the filing process.
For non-resident Indians (NRIs), who often encounter complexities in filing taxes due to discrepancies between their income types and available Forms, there is an expectation to allow the use of simplified or saral forms such as ITR1, rather than ITR 2. This adjustment would cater specifically to NRIs with income from other sources such as interest or rental earnings or dividend income, etc. This will help reduce difficulties faced by NRIs in preparing returns, thus saving time. To further ease challenges faced by NRIs residing abroad, who may find it difficult to send original documents via post and often opt for courier services incurring additional costs, the government could consider allowing e-verification through foreign mobile numbers or enable NRE accounts for pre-validation and EVC generation to help taxpayers. This would simplify the process and make it convenient for NRIs to meet their tax filing requirements.
Taxpayers also come across challenges at the time of filling ITR, when claiming a treaty relief under double taxation avoidance agreement. For example, claim of treaty benefit requires taxpayers to make a declaration whether a Tax Residency Certificate (TRC) from overseas Revenue authorities has been obtained or not, by electing Yes or No as options. Given that India’s tax year runs from April to March and most overseas countries have a calendar ear as the tax year, this results in timeline issues for obtaining a TRC while filing ITR in India. It is suggested that the election be modified to indicate if the taxpayer has already obtained a TRC or shall obtain a TRC, which will help taxpayers make a valid declaration.
Another crucial reform expected is the facilitation of tax payments directly from overseas bank accounts, aiming to enhance convenience for NRIs by eliminating the need for complex remittance procedures and ensuring seamless compliance with Indian tax regulations. Furthermore, enabling refunds to be credited directly to these accounts would simplify the process further, reducing administrative burdens and processing times for NRIs.
Similarly, the process of filing a rectification by the individual taxpayer should be removed or simplified to the extent where the processing of original returns results in erroneous demand from the department’s end as the resolving the demand is a time taking and a frustrating process for the taxpayers.
Last but not the least, introduction of a provision in the ITR allowing taxpayers to insert explanations and comments would help taxpayers explain certain tax positions or declarations at the time of filing ITR. Many developed nations provide such options to taxpayers when the tax position is debatable. This will act as a preventive measure to defend penal provisions of furnishing inaccurate income particulars when a claim towards exemption of any income or adopting a position under the treaty, is made.
Simplifying filing procedures can lead to higher compliance and reduce the cost of compliance for both taxpayers and the government. This, in turn, could boost tax revenues and foster a more conducive environment for economic growth.
(The article is authored by Ratna K, Executive Director and Ankit Agarwal, Senior Manager from Deloitte. Views expressed are author’s personal and do not necessarily reflect the official position or policy of the Outlook Media group or its employees.)