Filing tax ain't easy in India

The month of July is associated with the time for filing returns of income by individual taxpayers. The government has recently notified new forms for filing income tax returns. These forms replace the old ones. Any person planning to file her return for the year ended 31 March 2007 (relevant to income tax assessment year 2007-08) will have to use the new forms (see Ready Reckoner).

All the new return forms have a common prefix - ITR. Although the amendment in the Income Tax Rules, 1962 mentions that the new forms apply for the assessment year 2007-08 and subsequent years, the notes at the end of the new forms say that the forms are applicable only for assessment year 2007-08.

Perhaps, the government may change the forms yet again. The new forms are now mandatory for assessment year 2007-08. Old forms can be used for earlier assessment years.

Finance minister P. Chidambaram believes that the return forms in India are the simplest in the world. But does that make our tax returns simple? Old saral was a simple one-page form while the new forms - eight in number - are between two and 20 pages. This excludes the long list of instructions attached to each of these.Taxpayer and trigger scrutiny assessment.  Some observations on the forms:

The process is simple for only a small segment of taxpayers deriving income only from salary and interest - they need to fill the simplest of the lot, form ITR-1.

The old saral was more like a summary sheet, wherein the taxpayers had to give their income information through one-liners. Now, taxpayers need to read the instructions carefully as they are required to fill small details, which were annexed earlier.

For instance, 'Schedule S', which seeks salary details of the individual, requires the employer's PAN and other details to be provided in the return. If the employee has worked under more than one employer, then only the details of the last employer are to be filled in. Obviously, the salary income earned from all the employers is to be grossed and disclosed in the return.

Capital gains now call for the computation giving amounts of cost of the asset, cost of improvement, if any, and any other direct expenditure on transfer of the asset. In case of sale of more than one capital asset - short-term or long-term - a combined computation of all the assets is to be provided. 

Since the new return is now annexure-less, the details of TDS certificates, Forms 16 and 16A, are to be given under Schedules TDS 1 and TDS 2 respectively, which provide space for only two entries each. In case the rows are not sufficient, one is expected to attach a table in the same format to the return.

Similarly, in case of income from house property, details of up to only two house properties can be filled in. In case of more than two properties, the details are to be furnished in a separate sheet. After all, not all returns will be annexure-less.

The most important part of these returns, is the disclosure of the details attracted by the annual information return. Since the AIR is filed by institutions like banks, companies, mutual funds registrars and transfer agents, any discrepancy between the information given by the taxpayer with that in the AIR can fall seriously on the.

• Except for ITR-1, the rest of the seven forms are lengthy.
• The much talked about cash flow statement is not required to be filed now.
• No attachments are required to be filed with the return. In fact, if the taxpayer sends any attachment with the return form, it will be returned by the IT department. Thus, the requirement of attaching TDS certificates, advance tax challans, proof of 80C and 80D investments is done away with. This is a welcome change. It will also reduce the huge pile of papers that clutter the corridors of the Aayakar Bhavans.
• There are too many categories of forms now. This will only make life complicated for individual taxpayers. For deciding on which form to fill, how to fill, which figure to fill and in which column, the tax payer will be more dependent on tax professionals/tax preparers than before.
• In all the forms, details of all specified transactions that the taxpayer has entered into during the year and which are to be reported in the annual information reports to be submitted by banks, or brokers will have to be given. This would help the IT department in matching the transaction as captured under the annual information report with the transaction as reported by the respective taxpayer in her income tax return.

Transactions that need to be disclosed in the returns:

• Cash deposit of Rs10 lakh or more in the savings bank account in a year.
• Credit card payments exceeding Rs 2 lakh (by banks/credit card companies).
• Purchase of mutual funds for Rs 2 lakh or more (by mutual funds).
• Purchase of bonds or debentures for Rs 5 lakh or more (by company/institution issuing such bonds or debentures)
• Purchase of shares for Rs 1 lakh or more (by company issuing shares through public or right shares).
• Purchase or sale of immovable property for Rs 30 lakh or more (by registrar or sub-registrar).
• Purchase of RBI bonds for Rs 5 lakh or more (by the Reserve Bank of India).

If the return form has been prepared by a tax return preparer then the details of that TRP - his name and identification - are to be furnished in the tax return form. The TRP is also required to sign the tax return form.

All the forms have been designed keeping in view the ultimate aim of the income tax department - of making e-filing mandatory for every taxpayer in the country. The format of the various columns and the structuring of the cells point towards this direction.

Any change is generally met with resistance. The new ITR forms, too, have met with resistance from some quarters. Returns of income continue to cause anxiety to all taxpayers in general and to individuals and salary earners in particular. Earning income is hard enough, paying tax thereon is harder, and filing tax returns is the most painful part of the exercise.

The author is a chartered accountant and dean (finance), Welingkar Institute of Management