Filling Income Tax Returns needs to be simplified
When you visit https://www.incometaxindiaefiling.gov.in/home, you see more than 15 handsome compliments paid by tax-payers and tax consultants to the Income Tax Department (ITD) between November 22, 2017, and July 11, 2019, for providing a user-friendly portal, computerisation of filing and processing of IT returns, prompt redressal of grievances and year-by-year improvement. Whatever I saw is reproduced below for the benefit of the readers.
Changes in legal provisions, deficiencies experienced in the utilities and the felt need to simplify filing and processing of IT returns are major factors due to which columns of IT Returns and utilities are modified/improved. For the asstt year 2019-20, the ITD twice released revised ITR2.
Against the background of handsome compliments, a write-up drawing attention to mistakes and deficiencies may not be appreciated. Even then, as a tax-payer who has faced problems in filling ITR2, I feel it is my duty to share my experience with fellow tax-payers, tax consultants and IT department. Here I am mentioning three areas of concern.
Transfer of data from pre-filled XML to the ITR2 to be filed
The purpose of the facility to download prefilled XML and transfer data to the ITR to be filled is to make the task of preparation of ITR easier. More the amount of data transferred, easier the task of preparation of ITR. I find that the prefilled XML for ITR2 released on June 14, 2019 was much better. It facilitated transfer of General data (page 1 of the ITR), name and address of employer, complete address of the house property, prepaid taxes (if I remember correctly) and verification. However, after the release of new ITR2 on July 11, 2019, XML is limited in scope. One can transfer only General data, pre-paid taxes and verification. Obviously, instead of making an improvement, it is a retrograde step.
Deductions under Sections 80TTA and 80TTB
According to section 80TTA of Income Tax Act, interest income on savings accounts (not fixed or recurring deposits) up to ₹ 10,000/-earned by an individual (who is not a senior citizen) or HUF is deductible from total taxable income. According to section 80TTB, interest income up to ₹ 50,000/- earned by a senior citizen from banks (savings, fixed and/oe recurring deposits) is deductible from total income. In other words, while section 80TTA is about deduction up to ₹ 10,000/– available to non-seniors citizens or HUF, Section 80TTB is about deduction up to ₹ 50,000/- available to only senior citizens.
To help the assessees claim deductions, ITD has issued instructions and provided specific columns in the ITRs. However, an assessee not very much familiar with the provisions in the IT act but relying solely on instructions and wordings used in specific columns in the ITRs may get confused, partly because of the wordings and partly because of deficiency in the utility.
The instructions (downloaded on July 14, 2019) issued by the CBDT for filling ITRs 1, 2 and 3 are as follows:
Deduction under section
|Instructions for ITR1||The amount eligible for deduction u/s 80TTA is subject to a maximum limit of ₹ 10,000/- (does not specifically distinguish between senior and non-senior citizens)||A senior citizen’ is eligible for a deduction of deposits with a bank or post office subject to a maximum limit of ₹ 50,000.
|Instructions for ITR2||An individual, not being a ‘senior citizen‘, or HUF, is eligible for a deduction of interest on deposits in savings accounts
subject to a maximum limit of ₹ 10,000.
|A senior citizen’ is eligible for a deduction of deposits with a bank or post office subject to a maximum limit of ₹ 50,000.
|Instructions for ITR3||Same as above||Same as above|
The returns provide specific columns for filling the amounts
Deduction under section
|ITR1 dated 26/06/2019||Col. No. 5 p: for filling interest on deposits in the savings account. (Again, no distinction between senior and non-senior citizens.)||Col 5q: for filling interest on deposits in case of senior citizens
|ITR2 dated 11/07/2019||Schedule VI-A r: for filling interest on savings bank accounts in case of other than resident senior citizens.||Schedule VI-A s: for filling interest on deposits in case of resident senior citizens
|ITR3 dated 12/07/2019||Schedule VI-A x: for filling on savings bank accounts in case of other than resident senior citizens||Schedule VI-A y: for filling interest on deposits in case of resident senior citizens. However, space, where the amount has to be filled, is blocked.|
Blocking the space is a deficiency in the utility. A senior citizen who is required to fill ITR3 and is eligible for a deduction of interest income up to ₹ 50,000/- under the IT Act, is unable to claim the same in return.
Long-term capital gains/losses on the sale of equity shares and units of mutual fund
Filling B4 Schedule CG (Capital Gains) is problematic. Most of the columns are unnecessary and cannot be filled correctly. Look at the columns:
|From sale of equity share in a company or equity oriented fund|
|a||Full value of consideration|
|b||Deductions under section 48|
|bi||Cost of acquisition without indexation (higher of iA and iB)|
|iA||Cost of acquisition|
|iB||If the long-term capital asset was acquired before 01.0 2.2018, lower of B1 and B2|
|B1) Fair Market Value of capital asset as per section 55 (2) (ac)|
|B2) full value of consideration|
|bii||Cost of improvement without indexation|
|biii||Expenditure only and exclusively in connection with transfer|
|biv||Total deductions (bi + bii + biii)|
There is no need for iB. Perhaps those who designed ITR believed that every taxpayer would have acquired shares/mutual fund before 01.02.2018. It is quite possible that several assesses purchased shares/mutual funds on or after February 1, 2018, and sold between February 1 and March 31, 2019.
It would have been sufficient to mention in B4 that if the long-term capital asset was acquired before 01.0 2.2018, refer to instructions for computation of capital gains/losses. The method of computation should have been mentioned in the instructions.
iB creates a problem because the columns cannot be filled correctly.
The circular dated 14/06/2019 rightly requires separate computation of capital gains for each scrip or units of mutual fund sold during the year. The problem is that bi is designed as if an assessee has sold only one share acquired before 02.01.2018.
According to the IT Act as amended by the Finance act of 2018, long-term capital gain/loss on the sale of equity shares/mutual fund acquired before 01.02.2018 has to be calculated as follows:
Stage I: Compare fair market value (FMV) as on 31/01/2018 with full consideration (i.e. sales price) to find out which one is lower. The lower one becomes the benchmark for the next stage.
Stage II: Compare the cost of acquisition with the lower of Stage I. Whichever is higher is the cost of acquisition (call it “deemed” cost of acquisition).
The table set out below summarises the result (deemed cost of acquisition) under different situations.
|Situation||Deemed cost of acquisition||Gain or loss|
|Stage I||Stage II|
|1A||FMV lower than sale price||FMV greater than actual cost||FMV||Gain|
|1B||FMV lower than sale price||Actual cost greater than FMV but||Actual cost|
|(i) Lower than sale price||Gain|
|(ii) greater than sale price||Loss|
|2A||Sale price lower than FMV||Sale price greater than actual cost||Sale price||No Gain, No loss|
|2B||Sale price lower than FMV||Actual cost greater than sale price||Actual cost||Loss|
Obviously, if an assessee has sold a number of shares, “deemed” cost of acquisition may be anything, actual cost or FMV or sale price. Cumulative “deemed” cost cannot be arrived at by comparing the cumulative actual cost with cumulative FMV and cumulative sale price. Filling cumulative value in different columns of B4 will give wrong result (gain or loss). This is a serious flaw in Schedule CG. When the CBDT realised that taxpayers were finding it difficult to fill B4, it should have deleted iA and iB.
Trying to fill B4 even after circular of June 14, I faced problems several times. I sold a number of shares and mutual fund units, all acquired before 01.02.2018. Several times I failed to get the sheet validated. I would get a message that I must fill these columns. After several attempts, I could get the sheet validated even after omitting to fill iA and iB.
Item F of Schedule CG
An assessee is required to furnish quarterly breakup of short-term and long-term capital gains. Perhaps, information is required to ascertain whether instalments of advance tax have been paid for capital gains.
Since those above 60 years of age and not having income from business or profession are not required to pay advance tax, Item F puts unnecessary strain on them to compute quarterly capital gains.
- The scope of pre-filled XML should be expanded to provide transfer of not only general information but also name and address of employer, details of house property/properties, carried-forward losses, prepaid taxes and verification.
- The utility should be improved to remove shortcomings in claiming deductions under sections 80TTA and 80TTB, as mentioned earlier.
- The format of schedule CG should be changed to exclude unnecessary and confusing requirements to fill iA and iB for all assesses and Item F for senior citizens.
- The Department should provide taxpayers facility to ‘chat’ with technical experts to resolve technical problems faced by those filling returns. In this era of information technology, major service providers this facility for which software is easily available.
Some of these suggestions I had made in an earlier article, “Faulty utility for ITR2 for AY 2019-20” ( https://www.devendranarain.com/faulty-utility-f…2-for-ay-2019-20/). On July 1, 2019, I had written personal letters to the Chairman and members of the CBDT to as well as the Pr. Director-General of Income Tax (Systems) with a hope that at least someone will look into the issues I have raised. Only one member of the CBDT acknowledged my letter and stated that he was getting the matter examined. Others simply ignored. I have not heard anything from the Member who had told me that he was getting the matter examined. The changes made in the month of July show that my suggestions were just ignored. Going by the past experience, I do not expect any action by the CBDT or Director-General of Income Tax (Systems). Nevertheless, as a taxpayer and a former member of the IRS, I think it is my duty to highlight the problems and give suggestions.