By Pranay Bhatia and Deepashree Shetty
Albert Einstein famously said, “The hardest thing in the world to understand is the income tax.” While the income-tax law could be a little trying at times; tax compliances in India have undergone an enormous upgrade over the years. This is largely due to the simplification of tax processes and benefaction of the technology use in India.
Individual income-tax compliances in India broadly entail obligations to be met by self and interactions with the Indian tax authorities. These include tax identification registration Permanent Account Number – (PAN), tax payments, reporting through the Income Tax Return (ITR) and tax assessments.
These compliances were traditionally done with a lot of dependence on manual records. With the advent of technology, the processes gradually moved online for almost all compliances.
Let’s take a quick look at the tax compliances applicable for an individual taxpayer, which are simpler and completed through the electronic mode.
The PAN application process can be easily done by individual taxpayers through online mode. It also helps in tracking the process and the turnaround time has reduced substantially over the years.
New Tax Regime (NTR)
A major step was to move to a simpler tax process for individual taxpayers by reducing the tax rates and making it less cumbersome. Introduced from FY 2020-21, under NTR, taxpayers could avail reduced tax rates by foregoing certain deductions and exemptions. Hence, the taxpayer will be required to select either of the tax regimes i.e. under the existing tax regime with all applicable deductions/exemptions or under NTR at lower tax rates without deductions/exemptions. Taxpayers who do not want the hassle of understanding the tax laws may select NTR regime. But be cautioned to weigh both the regimes and opt for the one with right tax-cost.
Making income-tax payments for individuals is just a click away. With over 30 banks in India authorised for e-payment of tax, individuals can fulfil their tax payment obligations without the need for any physical visit to the bank. The procedure is safe and secure and also provides an instant acknowledgement.
Credit for tax payment by self or TDS by others is captured in Form 26AS, an online tax credit statement, available on the income-tax web portal. Having an outline of taxes paid helps in planning subsequent tax outflows and in keeping a check on tax credits. For example, bank interest income that has suffered TDS must appear in Form 26AS. If not, the bank could be approached to do necessary correction at their end.
The statement also captures information about the tax refunds paid during the year, specified financial transactions (high-value cash withdrawals/deposits, purchase of financial instruments i.e. mutual funds, shares, debentures, etc.). The recent amendments applicable for FY 2020-21 will make the Form more comprehensive by including other information such as taxpayer’s mobile number, AADHAAR number, status of tax proceedings, etc.
During the initial processing of a tax return, tax authorities only consider the tax credits appearing in Form 26AS. It is thus recommended to keep a check on Form 26AS at regular intervals and as a pre-requisite document for tax returns.
Each year, the ITR form is published with changes to cope with any amendment in law and capture essential reporting. ITR filing process has moved online and the paper form is allowed only in certain circumstances. For FY 2019-20, paper ITR form filing is permissible only for super senior citizens i.e. individuals aged 80 years or above during FY 2019-20. Opting for e-verification of tax return makes the entire ITR process ‘paperless’.
A taxpayer needs to make an appropriate assessment of tax laws applicable to him for the concerned year. Filing incorrect information may also lead to penalties in certain situations.
Interaction with tax authorities
The tax department has automated most of the processes to provide ease of compliance to taxpayers. These include online compliances such as faceless e-assessments for responding to notices, application for lower tax deduction certificates (Form 15G/ Form15H), tax refund status, etc., through the web-portal.
It has been a constant effort of the Indian Tax Department to simplify the ITR process, especially for individual taxpayers to not impede any tax compliances. Recently, online ITR filing has also enabled a quick refund of any excess taxes, giving relief to many individuals.
Better tax compliance not only establishes credential with the tax authorities, but it also allows favourable recognition with credit agencies, banks and other financial institutions. Every individual should comply with filing to reap other perks of being compliant.
(By Pranay Bhatia, Partner and Leader – Tax & Regulatory Services, BDO India and Deepashree Shetty, Director – Tax & Regulatory Services, BDO India)