Four Ways Through Which Finance Minister Nirmala Sitharaman Can Make Life Easier for Income Taxpayers in India

The ordinary man’s demands for tax administration changes include making it easier to file income tax returns and strengthening the online grievance redressal mechanism for taxpayers. India’s tax regulations are complicated, and even simple tax calculations require two calculations to determine which method of taxing is best.

For all types of investments, capital gains, bank interest computations, dividends paid, and so on, tax return forms demand numerous details. For capital gains and dividends, for example, you must provide quarter-by-quarter information to calculate interest liabilities, as well as transaction-by-transaction details of shares traded on stock markets to calculate capital gains. You must compute your yearly interest based on the quarterly interest obtained from the bank when it comes to bank interest. Furthermore, the forms for filing taxes vary each year, making the process of filing returns cumbersome and complex.

While the government has launched several taxpayer-friendly initiatives to improve the transparency of financial transactions in the country, such as E-Sahyog (a paperless mechanism by which the income tax (IT) department notifies assesses electronically), e-verification of ITR to speed up the processing time and issuance of refunds, Income Disclosure Scheme (IDS), increased the number of PAN cards issued, and TDS SMS alerts much more needs to be done to ensure the entire system is secure.

Here are a few ways Finance Minister Nirmala Sitharaman can make life easier for income taxpayers in India:

Rather Than Having Two Tax Regimes, Keep Simply One

A new tax regime was introduced in the 2020-2021 budget to provide taxpayers with a simplified tax regime with more graded slabs that provided benefits to those who did not opt for exemptions or deductions, but according to data from tax service provider Clear, only 10% of taxpayers who used its portal for tax filing chose the new regime. The old tax system, unlike the new one, offers a variety of exemptions and perks, and it appears that a sizable portion of individual taxpayers still favor it.

Individuals prefer the previous scheme because the various tax deductions and exclusions effectively lower the tax on a CTC of Rs 10 lakh, which is implausible under the new regime. The new system will help individuals with an income of up to 5 lacs and between Rs 5-10 lakh with lesser deduction claims. Individuals in a higher income tax bracket earning more than Rs 10 lakh per year, on the other hand, will pay more tax under the new tax regime, even though they might have benefited more from the current regime by making tax-saving investments.

Improve the Effectiveness of the Act’s First Appellate/Dispute Resolution Procedure

In recent years, the assessment and appeals processes have undergone significant changes. While these initiatives have minimized the need for face-to-face interactions between tax inspectors and assessors, there have been some teething issues with their implementation. More fine-tuning of these processes, including the implementation of appropriate legal modifications and clarification, would enable taxpayers to fully benefit from these reforms.

In the sense that they answer to CBDT (under the Ministry of Finance), the same administrative authority that appraises them for tax collection, the dispute resolution appellate is not truly independent. The result will be significantly more effective if the officers posted under the initial appellate/dispute resolution mechanism are shifted under the Ministry of Law and Justice while serving as appellate/dispute resolution officers.

Simply the Online Tax Return Forms

Individual taxpayers should be able to opt-out of confirmations and disclosures, and the FM should make a genuine effort to simplify online tax return forms. The ease of filing taxes is deteriorating, and the number of people who do not file returns is increasing. Apart from filing an income tax return (‘ITR’), taxpayers are currently obliged to comply with several other requirements (e.g., filing Form 10IE to opt for a new tax regime, Form 67 to claim a foreign tax credit, Form 10BA to claim a deduction under Section 80GG, and so on). The information that must be provided in these forms is also required to be provided in the ITR, resulting in numerous compliance obligations. Multiple compliances should be eliminated, and the ITR form should be used as a single document for all such compliances.

Integration

Interest earned on your savings bank account must be reported on your tax return as income from other sources. Interest earned on fixed deposits and recurring deposits is taxable, although interest earned on savings bank accounts and post office deposits is tax-deductible to some extent. They are, however, listed under other sources of income, as Clear explains. However, due to a lack of information, many taxpayers neglect to include the interest from their fixed deposit or savings accounts in their ITR. If this can be integrated with the Annual Information System and data can be pulled automatically, it will decrease the compliance load while also ensuring that tax compliance is high.