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Will Aadhaar linkage solve India's income tax woes?
March, 23rd 2017

Disclosures in your income tax return form vary greatly depending upon your income sources and the form applicable.

Historically, taxpayers have been extra cautious about the details that are sought. Back in April 2015 the government asked for details of travel and passport number. Bank balances were also requested. This led to adverse public opinion and ultimately these had to be rolled back. Consequently, one had to mention bank account numbers and IFSC code, providing passport number was made optional.

This time the government has proposed to make aadhaar mandatory to file tax returns.

The government also wants to make aadhaar mandatory for applying for PAN.

Interestingly, criticism of demonetisation has all but died down after BJP’s impressive win in the UP elections. The government has also committed to fully remonetiSe the economy. Perhaps, the most important indicator of the success of demonetisation will be its impact on taxes. There is hope that this will be the perfect prelude to a wider tax base.

Cash transaction limit proposed to be cut to Rs 2 lakh from Rs 3 lakh
To this effect, the Finance Minister in his budget speech assured that first time return filers, those earning less than Rs 5 lakhs, will have to file a simple one page form. Besides, things seemed to be only getting better in the post demonetisation era. Instructions given to tax officers who were following up on the operation black money findings, asked them to be polite. The process was completely online and instructions goaded officers to be unobtrusive. All welcome steps!

However, yesterday’s announcement seems has come as a dampener. Firstly, there has been substantial trust deficit in the way aadhaar has come to be. Many do not consider this system to be fully impenetrable.

Besides, the supreme court has restrained the government from making aadhaar card mandatory. Taxpayers are unsure how the government is going to use aadhaar with tax returns data. Honest taxpayers feel burdened with a whole gamut of compliances they must do.

More importantly, this announcement may be a kill joy for thousands who may have been preparing to become part of the mainstream tax paying population. PAN number and bank account information asked for in the tax return forms, cover both identity and financial information.

The OECD recommended that increasing the staff employed in the tax administration could help India alleviate its poor tax filing statistics. Instead of seeking more compliances and more information, the government must continue its path of digitisation for taxpayers. Our citizens must feel encouraged to be a part of the tax paying economy, rather than fear invasion.

The original idea of aadhaar sprang from its use in delivery of state subsidies. Aadhaar itself has been rid with many problems. During the demonetisation phase there have been stories of how aadhaar was being duplicated and misused. The government will do well in releasing details of how it will ensure privacy of tax return information after its linkage to aadhaar.

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