Fully auto-populated income tax returns on the cards

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Published: November 18, 2019 5:28:04 AM

Currently, some returns (ITR-1 and 2) are pre-filled, with information related to the taxpayer and employer, break-up of the salary into taxable component and tax deducted at source (TDS) through Form 16, and the final liability featuring among the entries.

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The government is working towards fully auto-populated income-tax returns. The modified form will likely include information on tax liability on gains from stock trade, dividends from mutual funds and interest earned from saving accounts, according to official sources. The income-tax department has had several rounds of meeting with depositories, mutual funds and banks to ascertain the feasibility of more comprehensive returns.

Currently, some returns (ITR-1 and 2) are pre-filled, with information related to the taxpayer and employer, break-up of the salary into
taxable component and tax deducted at source (TDS) through Form 16, and the final liability featuring among the entries.

While the electronic form gets automatically populated with tax liability on fixed deposit interest as that bank deducts the tax at source, the assessee still has to manually fill in the liability regarding interest earned on saving account as there is no TDS on the same. The manual work in terms of documentation and calculation increases manifold for someone with multiple investments in stocks and mutual funds.

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However, tax officials privy to the discussions also said that given the complexity of the task, the roll-out of pre-filled returns might still take some more time.

“We are at par with the world, and even ahead in certain aspects, when it comes to technology adoption for taxpayers’ services. But providing fully automatically pre-filled returns, which are complete in all aspects and only requires an authentication by the assesssee, is a task involving multiple agencies,” a senior tax official said.

He added that depositories, mutual funds and banks will have to tweak their computer systems to achieve the task. “For instance, a depository will not have information on the purchase price of a stock bought by a taxpayer 20 years in dematerialised form. These are some of the challenges we are currently discussing,” he added.

Experts said that if such fully pre-filled returns become a reality, it would not only ease taxpayers’ compliance burden but will also help plug revenue leakages. “Interest from saving bank account is chargeable to tax as income from other sources, but, generally taxpayers don’t report such interest in ITR. Therefore, the proposal of pre-filling such interest in ITR is a welcome step but it will increase the compliance burden on banks as currently they are not required to deduct tax and report to the income tax department the interest earned by their customers from saving account,” Naveen Wadhwa, DGM at Taxmann, said.

However, a complex system of data-sharing could also be a security risk. “Though this is an excellent solution to check tax leakages and ease return filling process, the initiative would require synchronisation of databases and information systems among various intermediaries, including banks and other financial institutions. Generally, such system integration process has to pass tests of various aspects including data security and hence gets time-consuming,”Sandeep Jhunjhunwala, director at Nangia Andersen, said.

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