My dear Modyji,
I retired from IRS on December 31, 2000 and as Member, Appellate Tribunal for Forfeited Property, on December 31, 2002. I am writing this letter to draw your attention to problems I faced while filling ITR2 for Assessment Year 2019-20.
- I am very much aware of necessity of computerisation . IT (Income Tax department) cannot function 00without IT (information technology). It is just impossible to receive, keep a record of and process millions of income tax returns manually. Computerisation has not only helped the department to manage its affairs but has also spared taxpayers from standing in queues to file IT returns and visiting IT offices for assessment orders and collection of refunds.
3. As all of us know, the system would work successfully only when there is no problem with hardware or software and the persons managing the system are able to quickly identify and rectify problems. The department as well as taxpayers face problems when any shortcoming anywhere in the system is not rectified timely. I have learnt this at my cost. The utility developed by the department for filling ITR2 has certain serious shortcomings, making it “disutility”. (I am not aware of problems faced in filling other ITRs.)
4. During the Financial Year 2018-19, besides pension from the Government of India (disbursed by Indian Overseas Bank, Golf links branch, New Delhi), I earned long-term as well as short-term capital gains/losses, interest from savings bank accounts, interest on arrears of pension from Department of Revenue and exempted income (dividend from equity shares and mutual funds). I have a house property which is self-occupied. (Salary as Member, ATFP, was revised on the order of Delhi High Court after a long legal battle)
5. I have always prepared my income tax return without anyone’s help. Having been in the IRS for over 35 years (though most of the time outside the income tax department) and being familiar with computer, I believed I had enough knowledge to do this work without external help.
6. This year, I faced several problems which I will describe below. Every time validation of a sheet, filled properly, was rejected, I used a new ITR2. Quite often, a problem faced earlier would not occur again but new problems would crop up. Even after more than a dozen attempts, I have not succeeded in filling a return that is technically correct.
7. After facing problems several times, I consulted a team of chartered accountants (CAs). I paid an online fee of ₹ 250/- to “Taxfull”, a group of CAs who claim to provide solutions to tax problems. I received about half a dozen replies. Two CAs assured me that I should download a new form and fill it to solve the problem. This I had already done several times. Three CAs agreed that there was a problem with the utility. One categorically stated that he was also facing the same problem. They all expected that utility would be modified. However, that has not been done so far.
8. Let me share with you the specific problems I faced.
Import of personal/tax data from pre-filled XML for AY 2018-19
- To start with, I tried to be smart. To save time and labour, I downloaded pre-filled ITR2 XML for AY 2018-19 and imported data to partially fill ITR2 for AY 2019-20. When the import was complete, I checked every sheet. To my shock, in Schedule VI-A, space meant for entering interest on savings account u/s 80TTA was blocked, though Schedule OS was blank. There is no way I can change that. So, pre-filled XML became useless.
Schedule S (details of income from salary)
- Several times I filled all the columns but when I clicked on “Validate”, it was rejected with instruction to declare income u/s 17(1), 17(2) &17(3)! Every salaried person does not get allowances and perks mentioned in section 17(2) &17(3). As a pensioner, I am not getting any allowance or perk. I am not aware of the Government of India giving allowances and perks to any retired civil servants. If it does, I am not one of those lucky fellows.
- At long last,‘utility’ was kind enough to permit validation without any declaration u/s 17(1), 17(2) & 17(3).
Schedule CG (Capital Gains)
- Filling B4 was a nightmare. 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 of 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.
- 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 arises due to the requirement of filling bi along with iA and iB.
- 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 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. This is a serious flaw in Schedule CG. When the CBDT realised that taxpayers were finding it difficult to fill B4, it should have removed 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. Aware of the consequences of giving cumulative FMV and cumulative sales price of all these shares and units of mutual funds, I did not fill columns iA and iB. Several times I failed to get the sheet validated. I will 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 senior citizens to compute quarterly capital gains. While filling Schedule CG, I discovered that I had to provide a quarterly breakup of Long-Term Capital Gains.
- Item F of Schedule CG should be disabled for senior citizens.
Schedule OS and Schedule VI-A
- During FY 2018-19, I had earned savings bank interest of ₹ 8516/-. Several times I entered this in Schedule OS (income from other sources) and in Schedule VI-A (deductions under section Chapter VI-A) and got the sheet validated. Unfortunately, each time utility removed this amount from Schedules VI-A and blocked the space where I had filled the amount.
- While filling the return for the last time, I started with filling Schedule OS and Schedule VI-A. I was very happy when the sheet was validated.
- I saved duly filled ITR2 and proceeded to calculate income tax liability. To my utter shock and surprise, the liability as calculated by the utility was more than what I had manually calculated. When I checked Schedule OS and Schedule VI-A, I discovered that while the amount was very much in Schedule OS, it had been deleted from Schedule VI-A and the space meant to enter the amount had been blocked!
- By now I was completely fed up. The only option left to me was to remove ₹ 8516/-from Schedule OS. I did that and got correct calculation of tax liability. There is no loss of revenue to the government because savings bank interest is exempt up to ₹ 10,000/-. The ITR 2 as I have completed is not technically correct but the faulty utility has left me with no option.
- I will not file the return for about three weeks, hoping that shortcomings of the utility would be removed and I would be able to prepare another ITR2 which is correct technically also.
e-payment of tax
- After the utility had calculated tax liability, I proceeded to make e-payment. I had to pay huge amount of tax under self-assessment because the Indian Overseas Bank (IOB) that disburses my pension had not deducted a single rupee as tax during FY 2018-19! I do not know whether the bank treated my pension as tax-free!
- Every year I have been sending to the bank– I did in 2018-19 also – details of savings eligible for deductions under section 80 and computation of income tax to make the task of bank easier. Usually, the bank deducted tax for full year on the last day of March. When it was not deducted this time, I lodged a complaint with the bank branch in the first week of April. The branch replied that it had taken up the matter with the head office at Chandni. I have not received any further information. I wonder, if the bank has treated my pension as tax-free!
- Anyway, that was between the bank and me. To make e-payment of tax, I had to fill the requisite form four times. Three times, at the stage of confirmation of the form I discovered that utility had changed the name of the bank. Perhaps, utility did not like my having account with the IOB. In the fourth attempt, utility relented and I could make e-payment.
- Thus ended my struggle with the utility provided by the Department. Due to faulty utility I wasted several hours to fill ITR2, a work which I used to complete in an hour maximum earlier.
35. I take this opportunity to draw attention of the tax authorities to three more issues and give suggestions:
- Organisations like IOB which do not bother to deduct tax at source need to be punished. Centralised Processing Unit can easily compile list of such defaulters.
- As mentioned in Paragraph 5, during FY 2018-19, I had received interest on arrears of pension. The ATFP paid the amount after deducting 10% (₹ 31,330) as income tax. Necessary entries appear in 26AS. However, despite repeated requests, the deductor, ATFP, did not send Form 16A. Instead, Pay & Accounts Office sent a certificate on its letter head that “It is certified that this office has deducted ₹ 31,330/-on area of pension in r/o Shi Devendra Narain, vide bill No. CP00000 368 passed on 12/11/2018 through PMFS ID – S 101801944446.” Not sending Form 16A is violation of income tax rules for which ATFP should be penalised.
- Major service providers offer chatting facilities to the clients. Through this facility, clients can requisite information and assistance. The IT Department should also introduce this facility. Software for this is easily available. Had there been this facility, perhaps I would not have faced so much problem in filling ITR2. Of course, this facility should not be available for getting advance rulings on controversial legal issues but computer experts can solve technical problems faced by assesses while filling ITR, applying for rectification of assessment order, etc.
- I hope, you will look into all the issues I have raised and take necessary action .
Shri P. C. Mody
Department of Revenue