THE POLICY LAB-01
JULY 04, 2022

By J B Mohapatra

PANDEMIC induced disruptions did lead to extension of timeline for filing Income Tax Return (ITR) for past 2 years- AY 20-21 and AY 21-22.This Fiscal, with things back on track and a promise of regulatory and statutory business as usual, July 2022 would a critical month in the obligatory to-do list of both Income Tax Department (ITD) and the taxpayer. 31 st July is the deadline for filing of ITR for individuals and entities who are not liable for tax audit and who have not entered into any international or specified domestic transactions. Nearly 98% of gross ITR filing comprise this category of cases. If last Financial Year's ITR filing statistics (gross filing of 71 million) is an indication, similar frenzied ITR filing activities would ensue in the days and weeks leading up to end-July, and so also the levels of excitement or frustration among taxpayers depending whether they have a hit or a miss at their efforts to push their ITR in to the System.

Multifarious common errors render our ITR filing obligations each year progressively difficult and frustrating. While errors differ in their complexity from as simple as using a wrong ITR form or a mismatched unvalidated bank account to posting an incorrect and erroneous deduction or exemption claim or overstating or understating brought-forward claims of a past loss or allowance, recognizing and addressing the very same set of issues on an electronic platform do require a very different expertise. Skills in on-line verification and submission of ITR, up-dation of user profile, verification and response to pre-filled data, knowledge of getting to 26AS information, updating and registering a DSC, submission towards a prima-facie adjustment (PFI)or a notice under section 245, or defective return notice under section 139(9) and above all a working knowledge of various functionalities on the e-filing portal need to be robust and so also your knowledge of contemporary tax law and how it is to be administered in your case. 2 typical examples of last year illustrate this. In one case, a grievance why exemption under section 10(13A) was being denied to a ITR 1 case was found directly linked to the taxpayer not reporting the same perquisites as part of his gross total income (GTI). In another, a grievance why deduction under section 80TTA (interest on SB Account) was not being enabled was directly traced to non-reporting of same amount of interest on SB account by the taxpayer himself in his ITR. It is elementary that if a component of your income is not reported as part of your GTI, both accounting principles and current law would not countenance your corresponding claims of deduction. Sustained handholding (not just familiarization with functionalities on e-filing portal, but working level awareness about basics of tax laws and concepts) is paramount in any ITR filing exercise, if it were to be collaborative and meaningful.

CBDT's response to ITR filing issues over the years primarily involved addressing the schematic/generic/systemic glitches through its Systems Directorate within the operational latitude that legislation afforded. These include emergency administrative interventions and fix in coordination with the Managed Service Provider(MSP) after obtaining feedback from stake-holders, public messaging, putting in place creative plans and urgency campaigns through the Directorate of Publicity, setting up war rooms and helpdesks to administer assistance through voice and non-voice executives, through emails, chats and ORM tweets. Such was the spate of issues last year that at least 2 High Courts (Rajasthan and Gujarat) felt the need to render guidance to augment ITD'S preparedness in receiving ITRs and associated issues.

The exercise to identify and analyze the root causes for taxpayer errors in ITR and appropriately address them in a manner legislatively proper and administratively feasible may appear to be largely reactive, since fixes are found and triggered only after internal and external stakeholders mark these out as problematic and insurmountable. While ITD's reaction time to address ITR filing issues has quickened over the years, creation and expansion of both virtual and in-person taxpayer services would bolster ITD's efforts to address ITR filing logjams and augment taxpayers' trust in ITD. Whether there is a need for reviewing the efficiency of taxpayer assistance centers (called Ayakar Seva Kendra-ASK) and system-enabled modules like ITBA to acknowledge service requests and monitoring of timelines as per Taxpayer Charter announced in terms of section 119A of the Act are of immense administrative significance. A thoughtful review of the strategies to address ITR filing issues would help configure a solution that answers to the short and long term needs of taxpayers and not remain a limited reactive fix to current problems.

Not just the limited universe of actual Indian taxpayers but even the legislature as early as in 2006 was aware of the need for an institutionally-established and schematic intervention for taxpayer assistance while they proceed for their ITR filing. Thus a new provision under section 139B was inserted in to the IT Act vide Finance Act 2006 authorizing the CBDT to prepare a Scheme for enabling a class of persons who would furnish their ITR through an authorized class of intermediaries (called Tax Return Preparer-TRP).The TRP Scheme originally notified in 2006 and since amended in 2018 was essentially driven by an underlying need for providing technical assistance to small and marginal taxpayers based on an universally held belief that ITR filing is a fairly complex exercise. Another administrative intervention for smoothening ITR filing under the powers under section 139 (1B) and 139D of the Act read with Rule 12(3) of IT Rules was the Electronic Furnishing of Returns of Income Scheme 2007 notified in 2007 under which a class of persons were designated as e-Return Intermediary (ERI) and whose responsibilities involved digitizing data of ITR submitted with them and transmitting those to the e-Return Administrator. As on date the TRP Scheme (non-operational since 2020) and ERI Scheme, both subsisting and available administrative tools, can be usefully leveraged to best subserve the interests of taxpayers intending to file their ITR. ITD moreover with its institutional maturity and technical capacity can, with the legislative freedom it has already been blessed with, work on and configure a more practical, contemporary and attractive taxpayer assistance package than what the earlier 2 Schemes offered.

Incident-based responses to problems faced while filing ITR necessary as they are do address the immediate concerns of existing taxpayers. Institutionally-established Schemes on the contrary have substantial long-term consequences, and tend to address both the existing pool of taxpayers and queries and concerns of potential taxpayers as well. It must never be lost sight of that demystification of ITD's processes for ITR filing is a prerequisite for enlarging our taxpayer base, and even out the taxpaying load across a larger pool of persons who have the wherewithal to pay but struggle with the processes.