Saturday, July 6, 2024

Time To Ease The Process Of Paying Taxes: Free Press Journal: July 6th 2024

 

There are some rationalisations that are called for to make the tax system more elegant as some of the levies need to be reassessed

The core content of the Union budget is not likely to be different from what was presented in the interim budget. There would be certain specific additions in budgetary outlays to align the same with what was promised at the time of elections. But this would not materially change the look of the final numbers. This has been the case in all past budgets presented by the new government.

One area which merits a closer look is on the administrative side which can make the process of making tax payments simpler for individuals. These reforms would be neutral in terms of impact on budgetary numbers but can improve the ease of paying taxes. Also there are some rationalisations that are called for to make the tax system more elegant as some of the levies need to be reassessed.

Let us look at the ways to make tax filing simpler considering that filing returns involves a plethora of pages. The first pertains to the reconciliation of the form 26AS and AIS. One of them captures all transactions on which tax is deducted while the other tries to cover all sources of income under the PAN. However, the two need to match and ideally there should be only one of them as the tax payer is often trying to match the entries on both the forms. Further, when it comes to the purchases and sale of securities, the present system tends to club both the buyer and the joint owner together which has to be contested by the tax payer. This has been on for over two years now and needs to be corrected.

Second, the concept of TDS does leave the doors open to inconvenience for the tax payer. For certain earnings, there are exemptions while for others there are limits beyond a certain amount that merits a deduction. There are distinctions made for interest earned on fixed deposits of banks and others. Further, if one does not have to pay taxes, there is a form that has to be submitted, which has to be done every year. Finally, once the TDS is done, the individual has to pay the balance on time depending on the income slab.

A way out is to take an instruction from the customer on the amount of tax that has to be deducted which can be zero, or the relevant tax slab of the old or new tax scheme. This way the full tax can be deducted at one stroke. It benefits the individual who does not have to keep a track of all such earnings as very often the amounts could be small and appear in the AIS statement and not 26AS. The government would be better off as the entire tax amount would be received at one point of time. The individual often cannot track these payments and ends up paying the same once the AIS is updated which often involves a penal interest charge once the financial year ends.

Third, the AIS and 26AS need to be the final one when the tax payer views the same. With May 31 normally being the date allowed for companies to pass on the tax collected to the government, there is less time available as these forms keep getting updated on a daily basis. As these forms keep getting updated periodically it gets hard for one to figure out which is the final version.

Fourth, once the AIS is taken to be the final income statement of an individual, insisting on Form 16 and other documents should be done away with so that an individual is dealing with only one official document.

Fifth, while the tax laws says that super senior citizens do not have to submit form 15H to avoid TDS, the instructions have not filtered down to the banks. This needs to be done to make life easier to this class of people.

An alternative model which is suggested here is the following. The income tax department already links all income associated with a PAN. An algorithm can work out the tax to be paid which can be conveyed to the assessee periodically. This would be the ultimate level of sophistication where the government tells the individual what has to be paid. This was not possible earlier, but with all transactions now being linked with the PAN card, it should be easily accomplished.

On the tax rationalisation front there are a couple of anomalies that need to be addressed. The first relates to the education cess. This is levied on all tax payers and is on the total tax that has to be paid. This cannot be a permanent levy and logically should be done away with. There is no separate statement in the budget which talks of how this money is spent.

On similar lines, the surcharge being paid by higher income individuals needs a review as the logic applied is incorrect. To begin with a surcharge cannot be a permanent one. If the idea is to tax the rich at higher rates, the income slabs for taxation can be altered upwards. The major anomaly here is that there are different grades for this surcharge. It begins once the taxable income crosses Rs 50 lakh and there are different rates for higher incomes. However, the surcharge is on the entire tax payable on total income and not for just the incremental income beyond the threshold. This can be corrected because if an individual earns Rs 49.99 lakh there is a certain level of tax paid. But once it is Rs 50.01 lakh, a levy of 10% is put on the entire tax paid and not just the incremental part. Today a person whose income crosses the threshold pays higher tax than one who is marginally below these thresholds.

As a lot of progress has been made on getting the PAN linked to all financial transactions, logically citizens should have access to ease of paying taxes. With widespread digitisation, all the suggestions made can be implemented and will save a lot of time and do away with ambiguity.

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