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New I-T return form's a tough nut
July, 02nd 2007

Are the new income tax returns (ITR) saral indeed? For close to a decade, successive finance ministers have sought to make the returns easy to file although many taxpayers are not convinced.

According to finance minister P Chidambaram, the return forms in India are the simplest in the world. Well, at least for now, there is no need to attach a cash-flow statement and there are no annexures. But does that make it simple?

While the old saral was a simple one-page form, though it mandated attaching relevant documents, the new returns (eight in all) are anywhere between 2 and 20 pages long. This number, however, excludes the plethora of instructions appended to each of these, which has made them pretty bulky.

While a small segment of society, which derives income solely from salary and interest can rejoice, since they ought to file the return in form ITR-1 the simplest of the lot; the others are bound to have a tough time filling in pages after pages of the lengthy and tedious returns. This probably goes against the contemporary notion of having simple tax returns that can be filled in without the help of CAs or tax advisors.

Damned if you dont

Says Jayant Jain, associate director, PwC, It is difficult for a layman to file these returns on their own. Also, as the return is annexure-less, it is very likely for an assessee to miss out on a lot of information, which could have otherwise been disclosed by way of say notes annexed to the return. Again, non-disclosure of vital information can attract penal charges at a later date.

He further adds that while the department has appointed tax return preparers (TRP) to help citizens in filling the returns, there is no provision in place that debars any penalty from being levied in case the TRPs miss out some important disclosure or fill the return erroneously.

Devils in the details

While the old saral was more like a summary sheet wherein the tax payers were expected to give the entire income information in one-liners, the new returns demand a lot more details for each category of income in discrete schedules and then summarise it in the end.

Read between thin lines

In such a scenario, taxpayers ought to read the instructions carefully before filing the returns, since they have to be much more careful especially while filing in those minute details which otherwise would have been annexed to the return.

For instance, Schedule S, which seeks salary details of the individual, requires the employers details along with employers PAN to be quoted in the return. If during the year the employee has worked under more than one employer, then only the details of the last employer are to be filled in. However, the salary income earned from all the employers is to be grossed and disclosed in the return.

Capital gains would now demand full disclosure of the computation of capital gains, which include the cost of acquisition of the asset, the cost of improvement and any other expenditure incurred on transfer of the asset. In case of transfer of more than one asset, short term or long term, a combined computation of all the short-term and long-term assets respectively shall be disclosed.

However, since each asset has a different cost of acquisition and improvement, combining all of them would actually end up confusing both the taxpayer and the tax department. This means there are good chances that the return may be picked up for scrutiny.

Tag it on, anyway

As the return is annexure-less, the details of TDS certificates, Forms 16 and 16A, are to be given under Schedules TDS 1 and TDS 2 respectively which provide space, enough for only two entries each. In case the rows are not sufficient, one is expected to attach a table in the same format to the return. Similarly, in case of income from house property, details of up to two house properties can be filled in the return.

In case of more than two properties, the details are to be given in a separate sheet and annexed. This contradicts the departments stand that no documents what-so-ever are to be attached to the return. As the department has instructed its officers to detach all annexures, it would hardly be a surprise if the these sheets are detached and returned to the assessee.

However, sources close to the tax department in Mumbai say the forms are not as complicated as was being made out. Earlier, taxpayers were using annexures to compute their income from capital gains. The method for computing the capital gains was given in the annexure and the law has not changed, they say.

A lot of AIR

The most important and complex aspect of these returns, nevertheless, is the disclosure of the details attracted by the annual information return (AIR). Since the AIR is filed by institutions like banks, companies, mutual fund houses and registrars, any discrimination between the information given by the taxpayer with that disclosed in the AIR can fall gravely on the assessee as the same is bound to be cross-verified by the tax department.

Sources say the department is gathering information from multiple sources. Even if the information cannot be used now, the goal will be to match taxpayer information with date collected from third parties such as banks and so on in future. The department feels that there may be several high networth individuals evading taxes. The new returns will help in cross checking the data as it will be stored electronically.

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