The Standing Committee on Finance has recommended that the Government must do away with the provision of cash flow statements in the income tax return forms 2, 2F and 3 in order to serve the taxpayer in a better manner.

The inclusion of cash flow statement in the tax return forms, particularly 2F, which is for salaried taxpayers, had come in for some criticism from certain quarters.

While cash flow statement was optional for financial year 2005-06 (assessment year 2006-07), the Finance Ministry has indicated that it might make it mandatory for financial year 2006-07 (assessment year 2007-08).

Income tax return forms are assessment year specific and are required to be notified each year by the Central Board of Direct Taxes.

Meanwhile, the Standing Committee, chaired by Maj Gen (retd) B.C. Khanduri, has also recommended that the Finance Ministry should make efforts to update the erstwhile `naya saral' (Form 2E) by providing more columns/space in it rather than introducing "another form".

Reasons for replacement

The United Progressive Alliance (UPA) Government had replaced Form 2E with Form 2F and one of the main reasons given was that there was insufficient space given in various columns in the return, which made it difficult for various taxpayers.

The Standing Committee, however, is of the view that this particular aspect could be taken care of by just expanding, space-wise, the existing format of Form 2E.

The Government had highlighted the lack of sufficient space, requirement of attachment of annexures, inadequate explanatory instructions, difficulty in matching information being collected by the revenue department from third parties through the Annual Information Return and unsuitability for electronic transmission as the main difficulties with regard to the earlier form 2E.

Panel `unconvinced'

In its report, tabled in Parliament on Tuesday , the Standing Committee on Finance said that it remained "unconvinced" about the reason and justification for introducing the new Form 2F, particularly the need for cash flow statements.

It has also stressed the need for reducing and rationalising the number of return forms with a view to arrive at minimum and specific return forms applicable for different categories of tax assesses.

The Committee observed that the option for certain categories of assessees to file their tax returns in more than one form might lead to confusion among the people.