Apart from the implementation of a new income-tax structure featuring reduced rates, fewer exemptions, and deductions, the income-tax department has embraced technology to simplify the tax-filing process.
For instance, the threshold for tax audits in small businesses was raised significantly to Rs 10 crore from the previous Rs 1 crore. Additionally, individuals above 75 years old are now exempt from filing income tax returns.
These changes have been facilitated by the Income Tax Department’s digital initiatives, enabling the acquisition of data regarding individuals’ incomes and expenditures directly from various sources such as companies, schools, utility providers, jewellers, real estate and vehicle registrations, and other vendors.
Thanks to these endeavours, the number of filed returns has surged to 7.85 crore compared to 3.36 crore a decade ago. Furthermore, annual direct tax collections have reached Rs. 12.37 lakh crore (as of November 9, 2023), a significant increase from Rs 6.38 lakh crore in 2013-14.
Improvements in Income Tax Compliance
There are multiple improvements to complying with income tax regulations. In addition, noncompliance may lead to tax penalties or legal issues for individuals and companies.
Annual Information Statement (AIS)
AIS directed that you can see the TDS, TCS, shares, real estate, and other high-value mutual fund transaction information in one place. This decrease minimized cases where overlooked income slipped through the tax system unnoticed.
Faceless Tax Assessment
To combat corruption in tax collection, faceless income tax assessment was implemented, mandating solely recorded online interactions between taxpayers and tax assessing officers.
Quick GST Refunds
Quickened form completion and verification resulted in expedited refunds and reduced government interest burdens. Unlike the previous practice of issuing refunds via cheques, which occasionally led to fraudulent activities, refunds are now directly deposited into taxpayers’ bank accounts.
Tax Base Broadening Using Details
Tax evaders faced a tougher challenge as tax deduction at source (TDS) expanded to cover various payments received by individuals, extending beyond fixed deposits and salaries. Tax collection at source (TCS) was also implemented on rents, art transactions, foreign investments, gold acquisitions, commissions, and even foreign tours.
Enhanced monitoring ensured that income-tax forms arrived pre-filled with most details, reducing the burden on taxpayers to provide them.
Simplified tax forms like ITR-1 Sahaj for salaried individuals and ITR-4 SUGAM for the self-employed were introduced. Furthermore, a proposal for a unified form for all taxpayers was put forth by the tax department in November 2022.
Missed in Income Tax Compliance
There are some different negative aspects of income tax compliance that were missed in previous budgets.
Multiple Tax Notices
Discrepancies in captured data and irrelevant PAN card mentions have resulted in distress due to receiving inaccurate notices years later.
Demand notices are being issued a decade or more after the fact. Even if the tax demand was settled, individuals’ future refunds are being used to adjust against these erroneous taxes.
Numerous instances of erroneous notices have been documented. For instance, a notice for a 2017 case was received recently, involving a taxpayer who had passed away, and her son had relocated abroad. With the unavailability of documents and insufficient time provided, resolving the case becomes a challenge.
Late Compensations
Faceless assessment has contributed to a slowdown in resolving tax-related issues. Issues being unresolved under this system have resulted in appeals being filed at the Income Tax Appellate Tribunal. The sluggish pace can be attributed to the reopening of cases.
Lower Ratio of GDP Tax
More endeavours are essential to transform into a tax-compliant nation. Despite the current filing of seven to eight crore returns, a leap from 3.36 crore in 2013, India’s tax-to-GDP ratio remains modest at five to six per cent, significantly lower than the 25-30 per cent observed in other developed nations. Unless agricultural income is included within the tax framework, the existing disparity in the tax-to-GDP ratio will persist and hinder further improvement.
Powers Burst
Under faceless assessment, direct communication with assessing officers has decreased. Previously, individuals could approach a joint officer who would physically review the file and offer solutions.
The income tax portal, regulatory website, and tax payment platform have all undergone changes. The previous website allowed rectification requests, which the new website doesn’t support. If someone hasn’t received TDS credit, there’s currently no means of communication.
