Needed: A more friendly version of tax laws

August 31, as you might know, is the new date by which the government wants you to file returns. There is a likelihood that those who have missed out last month will be busy doing some last-minute preparations now. As a tax practitioner, I am aware of first-hand difficulties people face during this process. Several of them are chronic and have been around for some years now. So far, authorities have turned a blind eye to these systemic flaws. But the DTC (Direct Taxes Code), which is on the anvil, holds out hope and is widely expected to iron out these procedural creases. Here’s a detailed sketch of the taxation ills that need an immediate fix.

The first is the timeline itself. Theoretically, we have four whole months -- from April 1 to July 31 -- for the purpose of filing returns. However, the I-T department does not publish revised forms and related instructions until well past that date. Therefore, although in theory we are permitted, indeed entitled, to file our returns as early as we choose after April 1, in actual practice, we are officially barred from doing so until much later.

Up next is the role of banks and other investment institutions. Most do not provide Form 16A -- detailing tax deducted at source (TDS) on behalf of the investor -- often until June. And repeated requests to get the form issued earlier have all fallen on deaf ears. If at all one is lucky to elicit a response, it’s the systems are (conveniently) down. Even information regarding the accurate amount of interest earned is difficult to finalise in good time since interest certificates for the previous 12 months are issued sometimes until well into May. This hampers proper accounting of both incomes and TDS deducted, particularly relating to cumulative deposits.

Then, there is Form 26AS that poses some challenge. As most taxpayers would know by now, Form 26AS is a consolidated tax statement that includes details of TDS, TCS, advance and self-assessment tax, refunds issued if any as also the details of MF, shares and bond transactions pertaining to a taxpayer. Now, in many cases, the information on TDS as mentioned in the form provided on the IT department website does not match with the actual income. To put simply, the taxpayer has earned interest and suffered TDS, but in spite of having provided the accurate PAN, the Form 26AS does not reflect the interest earned and the TDS thereon. I am sure many readers would identify with this dilemma.

Apart from communicating with the institution to resolve the issue, the way out, of course, is to quote the physical TDS certificate number (CIN) in returns – this way you can still get credit for the tax deducted. However, there is considerable confusion regarding this – many experts seem to feel that if the form 26AS does not reflect a TDS entry, credit for the same cannot be claimed.

Now, let’s talk about capital gains. The law requires us to pay capital gains taxes if due within the end of the quarter in which these are generated. Indexation of long-term capital gain is permissible, but the department does not provide the index figure for the current financial year usually until almost its end. How will the tax payer correctly compute his dues then? Why does the department with all its resources and access to data not provide this index figure before the end of August each year, instead of requiring individual taxpayers to make educated guesses? And then penalising them with interest on tax shortfalls if the guessed figures fall short on account of the final index declared?

Last, for the current filing, persons with over `10 lakh of income have to compulsorily file their return electronically. While I welcome any step that uses and adopts available technology for greater efficiency, in doing so, we should not lose perspective. We are, after all, a developing country and there are many who are yet not well-versed in using computers – it presupposes a working knowledge of not only how a computer and an operating system works, but also the internet and the particular software that enables e-filing. A case in point is that of senior citizens. Though I am sure there are exceptions, at the same time several seniors are just not comfortable or familiar with using a computer for this purpose.

Of course, it presupposes that everyone has access to a computer in the first place. Such persons, now, would be forced to seek outside help. There are CAs and other tax professionals who can provide this service, but this comes at the cost of money and time. Not to mention the practical difficulty of service providers increasingly going after the big fish and having no time or inclination to service smaller taxpayers. An exception to e-filing for senior citizens could easily be provided if the authorities so intend.

Piecemeal approach
The issues highlighted in this article draw heavily on one of the e-mails from reader N Patel. Patel’s astute observations succinctly capture and summarise the collective angst that the community of individual taxpayers feels against these systemic inefficiencies. While the government is busy trying to replace the Income Tax Act with the Direct Tax Code in order to make the law simpler, it is submitted that unless the system is made user friendly, the means will not justify the end. It is sincerely hoped that the department would note these points and take corrective actions as soon as possible.

The writer is director, Wonderland Consultants, a tax and financial planning firm. He can be contacted at sandeep.shanbhag@gmail.com