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Better use can resolve tax issues
February, 02nd 2010

With the calendar flipping to the budget month, the commercial hub of the country, which is also the capital of the highest tax-paying state in the country, has listed its share of demands.

These range from issues related to how the tax is calculated to how it is paid. Some issues have been troubling tax-payers all through the current financial year and need to be addressed to avoid the hassles in the next financial year, lest people who have been trying to honestly pay taxes retreat from the path they had decided to follow.

In July 2009, the Income Tax-department decided to divert all returns filed online to its newly-set-up Bangalore processing centre. The filing process allowed the tax-payer to file returns from the comfort of ones home or office premises. However, the process of submitting the acknowledgement to the Bangalore centre was just as tedious.

Those who could not afford the digital signature which cost anywhere from Rs 800 to Rs 2,500 and can be used only for one-two years had to take a copy of the income-tax return acknowledgment (also called ITR - V) and send it without folding to Bangalore.

This was to be done through regular post only. Many tax-payers faced difficulty as they sent it but never got an e-mail receipt from the Bangalore centre. They never had a proof of having sent the ITR - V as regular post doesnt provide one, unlike courier services.

This needs to be resolved, say chartered accountants. Ameet Patel, partner with Sudit K Parekh & Co, says, There was a recent circular stating that the date had been extended (from 30 days of filing of returns to 60 days) and the ITR - V can be sent via speed post.

But that is not the solution. They should de-centralise it rather than centralising it. ITR-V should be submitted at the local income-tax and then they can internally send it to the Bangalore centre. This should come out in the (Finance) Act.

Another recent introduction is the practice of sending annual tax statements to all assessees. The statement has details of tax deducted by the bank, employer or anyone who has cut tax. It also shows the tax paid by the individual. The tax-payer has to check the details of his tax deducted.

The catch here is that, if there is a mistake in the amount mentioned, the same cannot be rectified easily. The individual payer will have to run around to the bank, employer or past employer in case of job change to correct the error. Else the tax paid is considered as not paid.

Instead of penalising the asseessee, the onus should be on the deductor. Instead of a taxpayer having to cross-check in the annual income tax statement and then ask the employer or bank to correct the error, the department should cross-check with the deductor. It is a much better way, says Mehul Sheth, a Mumbai-based chartered accountant.

When an assessee asks the bank to correct the error, bank will decline the request if half of all transactions done require correction, he adds. There is no way by which an individual can force someone to rectify. The tax-payer is at the deductors mercy.

If the income-tax department tells the banks, they will act immediately. As the assessee has no powers, he should be asked to write a letter or submit the certificates to the income-tax department, says Sheth.

They can streamline the process in the Budget, bringing it in the Act itself. Things like how tax credit can be taken etc should be clarified, adds Patel.

With all the information technology progress that the country has done, experts say some IT innovations could help resolve taxation issues.

There is a need for a system where I get the credit on the basis of my PAN (permanent account number). Government needs to re-look at the tax-credit issue, ensuring that the liability for the credit lies in the right hands, says Sunil Talati, a chartered accountant based out of Ahmedabad.

He says, the basic tax-exemption limit may not be raised or reduced. But others demand tax sops in various areas. If the government wants to give a fillip to the housing industry, then the deduction on home loan interest, which is now capped at Rs 1,50,000, can be increased to a higher amount, says Kishor Karia, a chartered accountant who is also the chairman of the direct tax committee of the Indian Merchants Chamber.

There has been a demand that the standard deduction for salaried people, which was available in the past should be allowed again. Under this, deduction of up to Rs 15,000-20,000 was granted to salaried individual earlier and it was later abolished by finance minister P Chidambaram, he adds.

Sheth says the fact that the tax deducted at source is charged on the entire bill is another grievance. As a result, the TDS is being charged on the service tax component as well, leading to double taxation. The Income Tax department excused the rental service industry a year ago from paying TDS on service tax, but individual professionals and others still have to pay tax on another tax.

Patel says there is an ambiguity on whether the gains made from stock market trades should be treated as capital gains or as business income.

There are a lot of litigations in the country. The department has been issuing guidelines to tax officers, but they too are ambiguous on how to decide whether it is business income or capital gains.

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