We all look forward to the Union budget every year in the hope of getting some tax breaks which can improve our in-hand income. This time, the hopes are much higher. With the gross domestic product (GDP) at 4.5% in the September quarter (the slowest in more than six years), the government is expected to boost consumption by putting more disposable income in the hands of people in the form of tax breaks. The government’s move to cut corporate tax rates in September 2019 was also seen as a measure to boost private investment in the face of the ongoing slowdown.

Whether the government gives in to a populist budget or remains committed to fiscal discipline remains to be seen. But apart from the lowering of tax liability, there are other areas that tax experts suggest the finance minister can fix.

Make fewer changes

Experts said fewer changes in taxation rules will ensure more clarity. “Tax reforms should be strategy-oriented instead of having a short-term view of only improving tax collections. Also, the government should focus on reducing the frequency of changes and improve consistency in the applicability of law," said Archit Gupta, founder and chief executive officer, ClearTax, a tax filing portal.

Some of the major recent changes include introduction of standard deduction of 40,000 in Budget 2018, which was hiked by 10,000 in Budget 2019. Simultaneously, some allowances such as transport allowance and medical reimbursement were removed even as others such as leave travel allowance and children’s education allowance continued.

If the changes in tax laws are less frequent, then taxpayers will have more certainty about their tax liability and will be able to plan their investments and tax goals accordingly. “Rates of capital gains tax may not be required to be revisited every other year, and can be reviewed as a whole and revised for consistency and no change be implemented for at least five years. Every change must have a broad objective base (and not just revenue)," said Gupta.

Certainty in tax laws will help in better compliance, said experts. “Tax return forms should be kept consistent for a longer period of time to help improve compliance. For instance, ITR (income tax return) forms for assessment year 2015-16 asked for passport details, but the forms were then changed and the requirement removed, but the requirement has been reintroduced in AY20-21," said Gupta. Various changes are introduced in various ITR forms almost every year, prompting taxpayers to seek the help of professionals.

Smoothen e-assessment

E-assessment, introduced by the government in Budget 2019, aims to eliminate personal interface between the taxpayers and tax officials, increase transparency and reduce corruption. However, when it comes to implementation, e-assessment suffers from certain drawbacks, which need to be addressed to make the facility more effective and friendly.

“The intent of e-assessment was to enable a paradigm shift towards faceless assessments," said Divya Baweja, partner, Deloitte India, a tax consultancy firm. But that’s not happening and taxpayers are facing certain practical challenges, he added.

One of the concerns is the short timeline available to respond to notices issued by the tax department through e-assessment. “For instance, the timeline to respond to a notice issued under Section 143(2) is insufficient at 15 days with no upload provision at a later date in case of a delay," said Baweja. A notice under Section 143(2) is issued when there is a major or minor discrepancy in the tax return with respect to under-reporting of income or over-reporting of losses. The timeline to respond to a notice issued under Section 142(1) (to provide more documents or proofs) is also insufficient at times, he added.

“There are also restrictions on the file size (maximum 10 MB) for uploading, the number of documents (maximum 10 numbers) and special characters in the file name. Additionally, documents once uploaded cannot be replaced," said Baweja. These are only some of the challenges that warrant attention.

Allow belated ITRs

Experts also demand that taxpayers be allowed to file previous years’ ITR. At present, taxpayers can file a belated (late) return only till the end of the same assessment year.

“People should be allowed to file tax returns for the last several years if they want to come clean. There is currently no provision to file tax returns of past years, even after paying a penalty. There is a Section which gives discretion to the tax commissioner to let them file returns for past years, but the tax officer rarely allows it. If tax officers can go back four to six years and (in case of overseas assets) 16 years, taxpayers should also be allowed to go back if they discover a genuine mistake themselves," said Amit Maheshwari, partner, Ashok Maheshwary and Associates LLP, a chartered accountancy firm.

“Also, currently refund is allowed only in case ITR is filed; so this (allowing taxpayers to file belated returns) would be an additional benefit for taxpayers who intend to file," he added. Allowing filing returns of previous years will help increase the tax base as well.

It is likely that some provisions of the proposed Direct Taxes Code, which will simplify the antiquated tax laws, may see the light of day in this year’s budget.

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