It is a peculiarity of the Indian direct tax administration that over a third of its tax collections originate from the involuntary TDS and that many taxpayers don’t mind giving up their refunds if they can skip filing their tax returns. CBDT data tells us that in FY18, the number of entities paying tax, at 7.41 crore, exceeded those income tax return filers by a good 36 per cent. Perusing the return forms from the CBDT for the current assessment year, one gets a good sense of why the ordinary taxpayer finds the return filings to be such a daunting task. Apart from knowing which of the seven return forms apply to her, she will need an intimate acquaintance with the Income Tax Act and granular documentation of her income, expenses and transactions, to be done with this year’s filings.
After rolling out the single-page ‘Sahaj’ (ITR-1) with much fanfare in 2017, the tax department has made sure that only a few taxpayers get to use it, by periodically tightening the eligibility criteria. Tweaks in the last three years have restricted this form only to Indian residents with income from salaries and one house property, totalling to less than ₹50 lakh. This year individuals who are directors in companies or invested in unlisted equities have been excluded and need to per force file the 21-page ITR-2. Supporting information demanded of taxpayers has been getting more onerous by the year. This year, ITR-2 filers are expected to not just disclose aggregates of their salary income, capital gains and interest receipts but also provide granular breakups of each. Interest receipts are expected to be broken up into interest from savings accounts, deposits with commercial and cooperative banks, post office deposits and tax refunds, with ‘unexplained’ income disclosed separately. The IT forms also double up as an excuse for the taxman to collect a lot of extraneous information. Non-residents are now expected to disclose how many days they stayed in India for the last four years. Those selling immovable property are expected to supply PAN numbers and percentage shares of buyers. Disclosure requirements for the self-employed are even more voluminous with the return form running into 40 pages.
The Indian tax administration needs to realise that moving to electronic filing alone does not simplify life for the small taxpayers, as long as it places such a heavy burden on her to prove the veracity of her claims. This encourages poor compliance, while letting evaders off the hook. It is also difficult to understand, in the era of data mining and big data analytics, why the taxman needs to be spoon-fed so much information in the annual returns. Indian taxpayers’ PAN and Aadhaar numbers are already linked with IT returns and the taxman is supplied with voluminous data on high-value transactions by tax deductors and filers of Annual Information Returns. It is time the Centre reined in these lazy taxation practices and invested more in analytical capabilities at the tax department’s end.