The Hindu Business Line : Not just for form's sake

Herman Wouk once remarked: "The only imaginative fiction being written today is income-tax returns." We seem to be writing not one but eight such stories as the Government has decided to bring eight all-new tax forms for the Assessment Year 2007-08. New income-tax forms are becoming as predictable as a hot Indian summer. This time around, they seem to have been named somewhat like a set of new-age flight routes — ITR-1 to ITR-8. While the soft-launch of the forms is slated for May 14, one can pretty much predict their content.

The New Avatar

Last year, all of a sudden, the Finance Ministry mandated for a cash-flow statement to be attached with the return of income. After much protest, the proposal was made optional and has now been dropped. A key feature of these forms appears to be the elimination of annexures, as this would facilitate electronic filing. ITR-7 — meant for charitable institutions and trusts — is the odd man out, with annexures still mandatory.

Individuals have a wide variety of forms to opt for — for those with only salary and interest income, those with income from any source except business or profession, partners in a firm not having proprietary business or profession and partners in firms having proprietary business or profession. The rest of the pack includes separate forms for income and fringe benefit tax for firms, companies and charitable trusts and a standalone form for fringe benefit tax for persons not liable to file an income-tax return but liable for a return in respect of fringe benefits.

Too Many Forms?

While the clear demarcation of the forms must be appreciated, are they really needed? The fact that compliance in respect of income-tax has been good can be gauged from the fact that direct tax collections have exceeded Budget Estimates and touched the Rs 2,29,181-crore mark. In the case of business income, a good portion is subject to a tax audit, and the audit report contains more vital information than even the most well-drafted form can claim to obtain.

It is the salaried class that seems to be spoilt for choice as far as the I-T return is concerned. The salaried can now choose between a two-page back-to-back return or a three-page normal return.

It is ironical that the some time last year, the salaried were hearing statements that the Form-16 given by the employer would itself be considered their return of income and no questions asked save for those selected for the inevitable scrutiny.

The case for a radical simplification of the tax return for the salaried employee never seems to get a sympathetic hearing. Employers consider and verify all aspects of the income of the employee, including the loan on a house property and the investments they make under Section 88 prior to their issuing the Form-16.

The Finance Ministry has eliminated the possibility of wrongdoing here by stating that apart from the loss from house property, no other loss under any other head of income can be considered by the employer. After the recent decision of the Supreme Court in Madhumilan Syntex, wherein the apex court considered a two-day delay in the payment of TDS a serious offence, employers would be extra careful to deduct and pay the deducted tax.

With so many checks and balances in place, the Finance Ministry should be lenient enough to permit the annual income and tax statement given by the employer to be the income-tax return. Black sheep, if any, could be detected by the random surveys and scrutiny. This is the least that the hapless salaried class in India can expect.

Simplify

An additional responsibility this year would be to furnish information about high-value transactions that would be reflected in the annual information returns of third parties. One wonders at the need for this, especially after the Banking Cash Transaction Tax (BCTT) was introduced with the object of detecting high-value transactions that seemed to have evasion of income-tax written all over it.

In the case of business income, with audit reports being the need of the day for every major deduction claimed, and the omnipresent tax audit, one would expect the income-tax form to be crisp and simple. Apart from ensuring easy compliance, simple tax forms that are here to stay would also save the Finance Ministry major printing costs.

(The author is a Hyderabad-based chartered accountant.)