Pradeep Gaur/Mint
Pradeep Gaur/Mint

Advance tax, profile rules add to tax payer woes

Two recent measuresregarding advance tax and tax payer profile updatesmake the process not easier but more difficult to comply with

On the one hand, the Prime Minister talks about reducing the trust deficit between taxpayers and the tax department, and making compliance easier for taxpayers; on the other hand, the tax department seems to be doing its utmost to display its distrust of taxpayers, and make compliance more difficult. Two such instances in the past one week amply demonstrate this fact.

The first is the proposal to have all corporate taxpayers and other taxpayers, who are subject to tax audit, file a detailed estimate of their income up to 30 September of each year, by 15 November. If the estimated advance tax payment is less than the earlier year’s advance tax paid, reasons have to be given point wise. Besides, if the estimated income for the period is less than the income of the corresponding period by more than Rs5 lakh, or 10% (whichever is higher), then another intimation needs to be filed by 31 January of the estimated income and payment of taxes up to 31 December.

The format of the estimate is so elaborate, it is like filling up an income tax return, with head-wise details. A summarised profit and loss account is needed; and corresponding figures for the previous year have to be given, both for income and taxes, and profit and loss account.

In effect, this form will require finalising accounts for half the year, and perhaps even for the third quarter, if the income is less than that of the earlier year. One needs to keep in mind that this applies not only to large companies, but also to small trading businesses having turnover of more than Rs2 crore, and to professionals such as doctors and lawyers, whose gross fees is in excess of Rs50 lakh. Many small business owners and professionals do not understand accounts themselves, and would not have expert full-time accountants who could help them prepare such frequent final accounts, and fill up forms. The time spent and the cost of compliance would go up substantially for such persons. 

Why is the tax department doing this? This is a classic example of distrust of taxpayers’ willingness to comply. Till 1989, there were similar provisions, but with much simpler forms. When the concept of mandatory interest was introduced, this procedure was abolished. We now see it seeking to make a comeback in a more convoluted form, in spite of the existence of a disincentive in the form of a 12% interest in case of default in paying advance tax. Further, past experience shows that this filing will become the basis for harassment of taxpayers, by asking them to prove the stated reasons for fall in income, forcing them to file higher estimates and make larger payments of advance tax to make good shortfalls in tax collections, and others.

Is this a case of less government, more governance? How does this proposal fit in with the stated intention of making tax laws more business friendly? 

The second measure is the administrative step of updating a profile. This was introduced last week, mid-September. A taxpayer has to compulsorily update his profile on logging in. Without doing so, he can’t proceed further on the e-filing website. While filling in the profile, you have to again enter your email ID and mobile number. On entering an email ID or mobile number, one may get a message that this is not valid, as it has already been used for three other taxpayers. There are valid reasons behind why a person uses his email ID and mobile number for multiple taxpayers. Besides his own return, he may be liable to file returns as karta of his Hindu Undivided Family (HUF), as a partner of his partnership firm, as director of a company, as a trustee of his trust, as executor of an estate of a deceased relative, or as guardian of a differently abled child. Besides, if his parents are technologically challenged, he would give his email ID and mobile number to get the OTP within the limited time period for which it is valid. Professionals such as surgeons or lawyers may prefer to have their accountants’ email ID and mobile registered on their behalf, since they may be in the midst of a surgery or court hearing when they receive the OTPs; otherwise, they won’t be able to comply in time.

This is a repeat of what was attempted in 2014, but dropped, because of the hue and cry raised on account of the difficulties it caused (read about it here:

To restrict the use to just three taxpayers is unjustified, and defies common sense. How does one comply in such cases? Is it an offence to give one’s email ID and mobile number in such cases? The whole system seems to be based on flawed logic and lack of understanding of ground realities. Time and again one sees some change being made in the systems, which has no legal backing, and which causes tremendous difficulty to taxpayers.

Both the above examples show that the actual ground reality of what is being done by the tax department is quite different from what is being stated as the purpose. Instead of life being made easier for honest taxpayers who just want a speedy compliance, obstacles are being placed in their path. Is it any wonder that the taxpayers mistrust the tax department?

Gautam Nayak is a chartered accountant.