Tax Returns

The last week of any financial quarter, especially July, is normally spent filing Income Tax (I-T) returns by many. Filing returns is a statutory requirement by the government, for every salaried and self employed individual. Non compliance is dealt with strict measures. The roots of filing returns originates from the traditional set up, where government got the taxes collected at the end of the year. Such collections happened via manual ledger based systems with individuals required to submit their income sources along with tax exemption savings, if any. Over period of time, with inclusion of technology and better governance measures like PAN, the tax (collection and) reporting system has largely moved to electronic platform. This has not only streamlined the process, but also - more or less - obviated the need of filing returns, at least for salaried employees. That we still have to engage in this fruitless ritual, is a sad story.

In the context of salaried employees, where income is mostly derived from just one source, the redundancy is much more pronounced. The taxes of such employees are deducted at source (TDS) and deposited with the government on quarterly basis. In practise, the deduction and deposit happens on monthly basis. Every individual is mandated to get a PAN. The organisations are mandated to deposit the employee specific taxes, against the corresponding PAN. This facilitates seamless tracking of taxes paid by an individual, on as precise as monthly basis.

The employee gets the salary in a bank account. With wider acceptance of credit and debit cards at most of the merchant establishments, people prefer to keep the money in bank accounts and use the hassle free plastic cards. Online banking, though yet to catch up amongst all strata of bank customers, also helps replace cash transactions to minor extent. This helps in tracking high value transaction with ease, both, for the bank and the I-T department, if required. With PAN as mandatory requirement in opening a bank account, not only such transactions can be filtered but also the transactions involving dividend and interest credit. With banks, exchanges, brokerages and financial institutions all getting on to the electronic platform, codifying such transactions is not much of an problem. Such banks, which are still on manual ledger systems can be asked to upgrade within a stipulated time, by making requisite policy changes. In the meanwhile, the same can be asked to provide reports with special codes against such transactions.

The entire income, under all heads and from all banks can then be collated and arranged according to PAN. Unpaid balance tax liability on an individual, if any, can then be reported via preferred communication channels like postal mail, email or banks. The person can either deposit or claim refund, as applicable. The amount is question can be remitted to the I-T department by any of the bank of taxpayers choice. In case of default - and only then - the I-T department can be authorised to deduct due balance amount from any of taxpayer's bank account having sufficient money. So applies to the I-T department who is notoriously late is giving refunds even when ECS clearing option is specified. There can be concerns about intrusion of privacy with government becoming privy to almost all monetary transactions. Such concerns are mostly voiced by individuals or entities wishing to deliberately hide inappropriate assets. We have, anyway, well witnessed the outcome of lack of transperancy in the recent Wall Street crisis.

The moot point is to avoid wastage of millions of man hours in doing mundane job. A job, that can be efficiently done just be making subtle systemic changes. The same labour can be put to more productive purposes viz. evaluating the exception reports generated for these auto-filed returns, deploying men on foot to achieve better tax compliance and to deal with frauds, in case such a case floats up in exception reports. This, most certainly, is not an exhaustive list. Leveraging technology this way, the government can not only improve the compliance - and consequently collection - over and above its burgeoning tax collections but also reduce a lot of paperwork, avoid hassle to its staff and the citizens, and utilise its resources better. Life is precious. Why waste?

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Tailpiece

Money related affairs are mostly assumed to be rather dry and humourless. Not this IT department office. This one and similar pages were pasted in similar fashion throughout the different rooms of the office, ostensibly, to ease the taxpayers by segregating accoding to their income. The English is but legendary.




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Addendum
Now the ET editorial talks my language.