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The statutory requirement problems of income tax returns
August, 08th 2017

This year’s online filing of income tax returns has been plagued by difficulties faced by various categories of taxpayers. Very senior citizens and foreign citizens have been unable to file their returns in the absence of an Aadhaar number, though there is a specific exemption from linking their Permanent Account Numbers (PANs) to Aadhaar. Foreign companies and non-residents not having bank accounts in India but receiving income taxable in India were required to give details of an Indian bank account and its IFSC code. There was a fear created among non-residents about whether they are required to give details of all their overseas accounts, though they had only a negligible income taxable in India, which has since been clarified by the Central Board of Direct Taxes (CBDT).

The common thread running through all these problems is the fact that this requirement in e-returns creating the difficulty was not a part of the notified format of the income tax returns, or that the returns did not factor in available exemptions from certain requirements. This was, therefore, not a statutory requirement.

However, practically, in some of these cases, a taxpayer was unable to carry out his statutory obligation of filing a tax return without filling in the required details in the columns of the return to be filed online, as these were mandatory requirements, without which the return was not being accepted by the online filing website.

In the past as well, every year, there have been some similar glitches in e-returns. One had to find an innovative way to fill in the return, in a manner that was not incorrect, yet complied with the requirement. Most people could, therefore, somehow manage with some ingenuity. This year, however, the problem became acute, because of the fact that the return could not be filed at all, unless one provided the information, which at times was impossible to furnish.

The question that comes to mind is: can the tax authorities amend the statutorily prescribed forms without notifying the changes? Most reasonably, large taxpayers mandatorily have to e-file their tax returns. So when the e-filing format of the return is changed, they are forced to provide information that is not statutorily required. Else, they have to default in their return filing obligation, with consequent interest and penalty. They are, therefore, left with no choice but to comply. Is this not a backdoor imposition, without the authority of law? Can tax authorities take such liberties with the law, and presume that whatever they do is legal, because taxpayers have no choice but to comply?

There is no forum for taxpayers to take up such mistakes in the e-return formats and get them corrected. The Centralised Processing Centre Helpline is unable to help in such cases. There is no contact facility with the persons concerned in the systems department of the income-tax department to facilitate resolution of such problems. All that taxpayers can do is represent to the CBDT, and hope that somebody acts on their representation.

This whole process and system of preparation of the formats of e-returns needs to undergo a change. Just as taxpayers are under a statutory obligation to file a tax return correctly and in time, it is equally the obligation of the tax authorities to ensure that the e-filing procedure is in accordance with law, and that no taxpayer is prevented from filing his tax return or has to necessarily fill in incorrect details just to ensure that his return can be e-filed.

Given the complexities of our tax laws, obviously, it may not be possible to envisage in advance all such situations that taxpayers may face, and there are bound to be glitches. What is important is that there be a mechanism for taxpayers to report such defects to the tax authorities, and to get them resolved expeditiously.

Tax authorities cannot seek solace from the fact that it is only a small number of taxpayers out of the total (maybe even less than 1%) who are affected. After all, does the tax department not advertise that it is the patriotic duty of every person to file his tax return in time? The system (including formats) has to be such that every single person who wishes to file his tax return within the prescribed time should be able to do so in accordance with the law.

E-filing is an excellent facility for taxpayers. These defects in the return formats and the inability of taxpayers to get these defects rectified, unnecessarily detract from the merits of the entire process. All that is required is a more customer-friendly approach from the tax authorities towards e-filing. This would ensure that there is no additional stress of e-filing on taxpayers, in addition to the already existing stress of compiling all the data required for filing tax returns.

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