Government likely to introduce completely pre-filled income tax returns

For the AY 2019-20, the government had modified the income tax returns (ITR) offering certain pre-filled data such as income from salary and other sources. Now the finance ministry is working on completely automating the ITR filing, making it hassle-free for taxpayers. 

According to official sources, the ITR forms would be modified to pre-fill data on stock market transactions, calculating gains or losses on such transactions. The ITR forms would also auto-populate dividend income from mutual funds and interest on the savings account.

Taxpayers have to do a lot of manual work for documenting and calculating income from various investments such as stocks, mutual funds, government securities, and so on. The finance ministry has been discussing the mechanism for enabling pre-filling of data from securities depositories, mutual funds, banks and other institutions. 

At present, for the AY 2019-20, the government had enabled filling up of details of salary including the various components of salary and employer information, interest from bank fixed deposits and tax details. Taxpayers can verify and modify the pre-filled data as per the documents in their possession. The ITR would calculate the aggregate income and taxes accordingly.

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The move of the government to synchronise data from various agencies and facilitate complete automation of ITR forms would help in avoiding revenue leakages. The activity is complex and may require some time before the new set of ITR forms are rolled out. The move would also technically equip the income tax department in obtaining taxpayer information. 

To facilitate the information, depositories, mutual funds and banks have to modify their computer systems to collate the necessary data. There are certain practical challenges involved in the process of gathering data. For example, a depository may not have the information on the purchase price of a stock bought by a taxpayer 20 years ago in dematerialised form.

Experts view the government’s proposal both revenue compliant and taxpayer-friendly. Interest from the savings bank account is income chargeable to tax under other sources, but taxpayers generally omit to report the interest while filing their ITR. Hence, the proposal to pre-fill the savings interest is a welcome step.

However, the pre-filling would create additional compliance burden on banks as currently, they are not required to deduct tax and report to the income-tax department the interest earned by customers from savings accounts. 

Also, a complex system of data sharing could create security risks. The proposal would require the integration of various data systems across various agencies and intermediaries. Such system integration would need to pass tests of data security and hence would take time.

For any clarifications/feedback on the topic, please contact the writer at sweta.dugar@cleartax.in