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Irritants in the new income-tax forms
May, 07th 2007
While income-tax isn't new, effective mid-May, we are to have new tax forms, called the ITR series.

"Over the last few years, the taxman has been attempting experiments both in lawmaking and return forms for filing tax returns, but not all changes are workable," says Mr V.K. Subramani, an Erode-based chartered accountant.

ITR-1 is meant for salary earners who have income from salary and interest income. If the salary earner has any other income under the head `other sources' not being interest income, then the return to be used is ITR-2, not ITR-1. Again, if a salary earner has income from salary and loss from `house property' arising due to housing loan interest, the form to be used is ITR-2.

"The new return forms ITR-1, ITR-2 and ITR-3 are predominantly for assessees who do not have to maintain books of account on regular basis. These three forms could have been merged into a single form, as in the past when there was a tax return for non-business assessees," opines Mr Subramani. "Why make subtle differences among non-business personal taxpayers who have very limited scope and reason for tax evasion exercise," he frets.

The return form meant for individuals and HUFs (Hindu undivided families) having income from business or profession is an exhaustive one seeking furnishing of balance sheet and profit and loss account in the assorted format prescribed, notes Mr Subramani. Difficulties may arise, because "the terms used in the format, particularly relating to profit and loss account, may not be easy to adopt or furnish; the head of expenses recorded in the books already may not match exactly with the terms used in the return form."

Similar mismatch is anticipated in the profit and loss account format prescribed in ITR-4 and ITR-5; especially manufacturers who outsource "may not be able to furnish details under the prescribed heads of expenditure for various processes of manufacture." Not only is ambiguity likely in furnishing the required details, but any comparison of such details across time can lead to distorted conclusions, fears Mr Subramani.

A few other points that he mentions are as follows:

  • The law does not seek mandatory maintenance of quantitative details of goods traded or manufactured, but the return form now seeks quantitative details of raw materials consumed and finished goods produced with details of out-turn. Not a happy situation for taxpayers, considering that the form has been announced after the end of the financial year.

  • The return forms seemed to have been designed to facilitate computer scanning of the returns and for unbiased selection of cases for scrutiny. However, mandating adoption of certain accounting terms by the taxpayers for furnishing the return would only show that the new return is an exercise attempting to match two incongruous elements, viz. the accounting terminologies and legal provisions.

  • Seeking the furnishing of PAN (Permanent Account Number) of the auditor in the return form but without countersignature of the auditor may create difficulty as regards its authenticity. In contrast, Tax Return Preparers (TRPs) have to affix their countersignature in the returns filed through them.

    Since the return form prescribed is applicable for only one assessment year, we may expect every year the return form is modified or improved taking into account the practical difficulties, says Mr Subramani. "Any delay in the notification of the form leads to demand for extension of due dates for filing returns by the taxpayers."

    D. Murali

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