Simplifying Personal Tax Filing in India – Digital Solutions and New Initiatives by the Government

By Melissa Cyrill

India’s Central Board of Taxes (CBDT) is gradually unveiling a slew of initiatives that seek to expand the country’s taxpayer base by increasing institutional transparency and easing assessment and payment process for taxpayers. Mostly in the form of digital solutions, the CBDT aims to revamp the country’s laggard tax administration infrastructure by implementing an efficient paperless system and simplifying the existing communication interface.

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Latest Initiatives by India’s Tax Department

Various taxpayer friendly initiatives have been launched by the government that simultaneously serve to bolster the transparency of financial transactions in the country.

E-Sahyog

This initiative introduces a paperless mechanism whereby the income tax (IT) department notifIES assessees electronically. This removes the burden of physically interacting with tax authorities and saves time. The online system resolves any errors or mismatches in IT returns instead of scrutinizing taxpayers in person.

Expansion of Pan Card Administration

It is now mandatory to quote one’s Permanent Account Number (PAN) for any purchase or sale exceeding US$ 1496 (Rs 100,000). At present, only about 230 million people possess PAN cards in India. The government aims to expand this user base, particularly in rural areas, via 13,500 PAN application centers across the country. Extending the scope of the PAN will enable tax authorities to combat the illegal circulation of ‘black’ money and keep track of the taxpayer base to facilitate efficient budget plans.

Tax Return Preparer Scheme (TRPS)

The IT department launched this tax filing service in 2006 whereby trained and certified professionals file returns on behalf of taxpayers at free of cost or for a marginal fee. The TRP scheme targets small taxpayers, and reduces costs while encouraging greater compliance with tax laws.

Faster Tax Refund

Since 2015, the IT department has committed towards faster processing and sending tax refunds through an automated ecosystem achieved through the Aadhaar card-based income tax return (ITR) verification, which eliminates the need for human interface in taxpayer services. The current capacity shows a peak of processing 500,000 returns per day with the average processing time reduced to 55 days (from 12 to 14 months).

Simplified IT Forms

The finance ministry introduced a new and simplified three page ITR format in May of 2015 – forms ITR 2 and ITR 2A. Previously, the income tax return form was 14 pages long. The tax department also did away with the controversial reporting requirement whereby taxpayers had to compulsorily disclose foreign trips and dormant bank accounts (for up to a period of three years). 

Clarification on the Applicability of Minimal Alternative Tax (MAT)

The CBDT has clarified that MAT is inapplicable for foreign institutional investors (FIIs) and foreign portfolio investors (FPIs) in India.

E-Verification of ITR

Online verification of income tax return forms through Aadhaar card linkage and net banking facility removes the hassle of sending hard copy of the ITR-V form to the IT department. This shortens the processing time and issuance of refunds.

SMS Alerts on Tax Deducted at Source (TDS)

Directly targeting the salaried professional class in the country, the finance ministry launched an SMS alert service on October 24. The service, which can be availed every month, will send SMSes (text message) to salaried taxpayers on their TDS deductions. This makes it much easier for assessees to match their office salary slip and the SMS notification at the end of the financial year to get updated on any tax dues and/or avoid paying taxes twice. According to the CBDT, this initiative will benefit approximately 250 million salaried taxpayers, and the service will subsequently be extended to another 440 million non-salaried taxpayers. The frequency of the SMS alerts will also be increased once the tax department streamlines the process for filing TDS returns so that it delivers such information on a real-time basis.

Faster Grievance Redressal

The disposal rate of grievances received in the last fiscal through the centralized public grievance redress and monitoring system increased dramatically as per the tax department. To further bolster the system, an ‘e-nirvaran’ facility was recently launched this year for online redressal of taxpayer grievances related to refunds, ITRs, TDS, and PAN. The ‘e-nivaran’ form is also expected to be provided at the Aaykar Sampark Kendras (ASKs or tax facilitation centers) located in over 300 cities across India.

Other Initiatives

• Business firms to get their PAN and Tax Deduction Account Number (TAN) allotted immediately after the issuance of the Corporate Identity Number (CIN) by the Ministry of Corporate Affairs.
• Extending the payment facility for taxes through net banking and ATMs and at more than 17,000 bank branches of 31 designated banks.
• Online filing facility that allows uploading of ITRs anywhere and anytime.
• Online provision for viewing of tax credits and specified transactions to the taxpayer.

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Observations

India’s tax department has embarked on an ambitious reform agenda in the last two years, which is continuously getting updated and evaluated as attached to annual fiscal budget objectives. This year, too, has witnessed the rolling out of new e-initiatives and schemes like the Income Disclosure Scheme (IDS), increase in PAN cards issued, and TDS SMS alerts. Collectively, they seek to promote transparent tax transactions, boost net tax collection, tackle the ‘black money’ conundrum, and encourage tax law compliance through easier processes and faster refunds. Given India’s size and population, a lot needs to be done to ensure the entire system remains seamless in administration, information is readily available, and facilities are accessible to all.

The central challenge now is to extend these reforms to the post-filing system in place for businesses in India. The need for such an overhaul was acknowledged by the World Bank’s Ease of Doing Business report for 2016-2017, which scored India at 4.27 out of a maximum score of 100 on the ‘post-filing index’ criteria – only Timor Leste and Turkey have worse scores in the world. This index refers to what happens after a firm pays taxes, such as tax refunds, corporate tax audits, and administrative tax appeals.

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