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Tax confusion
April, 08th 2016

The Central Board of Direct Taxes' (CBDT's) mandate to all individuals and Hindu Undivided Families with taxable income of over Rs 50 lakh per annum to disclose the details and cost of their immovable and movable assets such as cash, jewellery, vehicles, yachts, boats and aircraft is yet another questionable idea that will create unnecessary confusion. As a follow-up to this year's Budget announcement, the income-tax department notified last Wednesday a new set of nine income-tax return (ITR) forms for assessment year 2016-17 to implement the new directive that makes disclosure of assets and liabilities mandatory. Earlier, this was applicable only for those who had income from proprietorship or partnership businesses. The revenue department has justified the move on three grounds: one, it would help track tax evasion by high net worth individuals, especially as they would not have to file wealth tax returns after the passage of the Finance Bill; two, it would make the government's job of mapping an individual's income against her assets and liabilities much easier and help in dealing with the menace of black money; and three, it would not affect the common taxpayer and would affect only an estimated 150,000 ultra-rich individuals.

The problem, however, is more in what the CBDT notification does not say. For example, it gives no indication of how the value of the assets will be determined. Tax experts say there is considerable ambiguity over valuing assets and liabilities, which will make filing tax returns a little complicated. Assuming that such declarations will have to mention the acquisition cost, many individuals will find it difficult to determine the cost of gifted assets, inherited assets or assets purchased several years ago, as few will have kept the records. CBDT should have specified this clearly, as the last date for filing such details along with tax returns for the previous financial year is July 31. The absence of such advisories for determining the cost of immovable and movable assets only helps in leaving the door open for individual discretion and thus harassment by tax officers. Such fears are not unwarranted going by past experience.

The bigger issue is the rationale for such voluminous details in ITR forms - after all, almost all the details the I-T department is now asking for from people above a total taxable income of Rs 50 lakh is already accessible to tax officials. So why complicate the paperwork further? The department, it seems, is particularly fond of voluminous returns. For proof, consider this: even the simplest ITR-1 form for salaried individuals having a single house is now a seven-page document, instead of the five pages it was earlier, and has an additional column to mention tax deducted at source. It is unfortunate the I-T department hasn't learnt from past mistakes. Last year, for example, it had to rework the controversial tax return form, which sought information on foreign travel undertaken by taxpayers and the expenditure incurred, as well as details of all bank accounts along with account balances at the end of a year in the tax return forms.

The government has already enacted the Black Money Act, 2015, requiring compulsory disclosure of foreign assets and income and subjecting evaders to stiff penalties and jail terms. It has also introduced legislation aimed at amending the Benami Transactions (Prohibition) Act to help check creation of black money in India, especially in real estate transactions. These were all major changes. Questions about the necessity of the latest move, therefore, are likely to be raised.

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