Bhanoji Rao

India, home to the globally respected IT professionals and software companies, should not make it difficult to file income-tax returns, as will happen with the new Form 2F. With some thought, filing returns and paying the tax can be made totally painless. Governments must not make complex demands when their own record on deliverables to people is not up to the mark, says BHANOJI RAO. We need a better e-filing system that could encompass the following: Using the BSNL broadband connection, uses the PAN, completes the income-tax return and clicks `file.'

Needed, a more user-friendly returns filing system.

Revenue from taxes on income was no more thanone per cent of Gross Domestic Product (GDP) all through the 1980s and was devoid of a trend. Since the reforms of 1991-92, the picture changed dramatically. From 1.03 per cent of GDP, the gross income tax revenue rose to 1.64 per cent of GDP in 2004-05 (CMIE Report on Public Finance, Page 186).

The trend was not smooth and the ratio had ups and downs but, overall, there was significant progress. Behind the healthy trend were at least two important innovations, one on broadening the taxpayer base and the other in terms of simplification of the forms for use by tax-payers. Base broadening was achieved through compulsory filing of a return by those falling under the one-by-six rule applied to the preceding fiscal year occupying immovable property with built-up area above specified threshold, owning or taking on lease a motor vehicle other than a two-wheeler, subscriber to a cellular phone, incurring expenditure on foreign travel except to specified neighbouring countries, holding credit card, and membership of a club that charges entrance fee in excess of Rs 25,000.

With due compassion, however, the authorities exempted those who were 65 years or older with immovable property or cell phone from the operation of the one-in-six rule provided the other four conditions did not apply and provided the persons were not engaged in a business or profession. An important taxpayer-friendly innovation was the Naya Saral, Form 2E, the income-tax return form for resident individuals and Hindu undivided families "not having income from business or profession or capital gains or agricultural income". The form is just one-page long, with another of crisp and clear instructions. It takes care of all those whose income is made up of salary, house rent, and interest and dividend receipts. The Form is simple, easy to understand and fill. Saral Form 2D — again just one page — was for those with agricultural and business income in addition to salary, interest, rent and dividend receipts.

THE NEW FORM 2F

It looks like Saral (or at least its simplicity) is soon to retire. With effect from June 1, a new income-tax return form (Form 2F) has been introduced for use by individuals and Hindu undivided families who do not have income from business or profession or capital gains or agricultural income, and whose income comprises salaries, income from house property (one house only) and income from `other sources'. It is a four-page form with two more pages of instructions.In the first two pages, the tax-payer provides general particulars (including e-mail address), employer and bank accounts, a complete summary of income and other details in two pages. Pages three and four are for recording detailed information in nineblocks (schedules) in support of the income and other financial/tax data in the first two pages.

Schedules 1through 9 respectively are for providing details on income from house property (Schedule 1), income from other sources such as interest and dividend (2), exempt incomes (3), deductions under 80C, etc (4), cash flow statement (5), advance tax (6), tax deduction at source in respect of salary income (7), tax deduction at source in respect of income other than salary (8), and self-assessment tax particulars (9).

Though it is stated that the new form is for the assessment year 2006-07, the fact that the Form has to be used from July 31 onwards implies that the new form is not going to go away. For now, the Form is not compulsory for those with incomes up to Rs 1.5 lakh, and others may file the returns for this year in the older form.

FINE-TUNING 2F

From a layman's perspective, there is hardly any problem with the new form and one must not make too much out of the increase in length, as long as the change is for thegood even if it means a bit of apparent inconvenience to the taxpayer. The really complex segment of the new form is in Schedule 5, requiring day-to-day account keeping, if one wishes to be totally accurate withregard to supplying the information required in the Schedule. The core complexity of Form 2F — namely Schedule 5, which is optional for the assessment year 2006-07 — needs some fine-tuning if it continues beyond 2007. To minimise the inconvenience to the majority, the following idea could help.

For all those with total income below a specified level (say, Rs 2 lakh), simply ask for the numbers and details of bank accounts; for those with income above Rs 2 lakh and below Rs 6 lakh, ask for the current balance in every bank account. It should then be left to the tax authority to seek or not to seek more information. Finally, all those with annual income of Rs 6 lakh and above, Schedule 5 could be mandatory.

E-FILING

Even after the introduction of Form 2F, neither e-filing is mandatory nor would it suffice by itself. In fact, while the taxpayers are encouraged to submit the return electronically, apart from any incentive to do so, there seem to be only disincentives. On the one hand, the paper return has to be submitted after the e-filing. On the other, the e-filing has to be done through "persons authorised to act as e-return intermediaries."

We need a better e-filing system that could encompass the following: Using the BSNL broadband connection and a PC or notebook, the tax payer goes to incometaxindia.gov.in, uses the PAN, seeks a temporary password, creates own new password along with an easy-to-remember hint, completes the income-tax return and clicks `file.' Within 24 hours, the person receives an e-mail from the IT Department confirming the tax due. The person then pays on line by authorising a debit to one of his or her bank accounts. Within another 24 hours the person gets a "thank you for prompt payment" message from the IT Department.

This is how tax returns and tax payments should be organised in India, home for the globally respected IT professionals and software companies. A small incentive in terms of a lucky draw may be introduced to encourage e-filing. (Singapore did this long ago at the time of introducing e-filing.) Indian Citizenship and residency must carry some duties. Yet, with Central, State and local governments coming up with numerous and complex requirements, one after the other, living is becoming complicated with no commensurate rise in welfare, personal security and so on, which are the deliverables from the compliance with all regulations and requirements.

(The author, formerly with the National University of Singapore and the World Bank, is Professor Emeritus, GITAM Institute of Foreign Trade, Visakhapatnam. He can be reached at bhanoji@gmail.com.)

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