How Budget can make taxpayers happy...without cutting rates

NEW DELHI: Process of filing income tax return has been simplified over the past few years. From e-filing of tax returns, which was made mandatory for individuals having a taxable income of over Rs 5 lakh for FY 2012-13 onwards, we have moved to e-assessment of I-T returns. A pilot has been launched in a few cities. Yet, compared to what some other countries have done, lots more can be done to make tax payments easier and may be even rewarding. We highlight four global best practices that India can adopt, starting from this year's budget.

Pre-filled I-T returns : Wouldn't it be nice, if all that you had to do was to sign off on an I-T return sent to you by the I-T office?

In Denmark and Sweden, pre-filled I-T returns are sent to taxpayers detailing their taxable income and I-T dues. Taxpayers can intimate their acceptance of the pre-filled return by email, phone, SMS or on paper. In Denmark, a `no response' is deemed to be acceptance of the I-T return. In Australia, all financial transactions are linked to the taxpayer's identification number, which is made available to the Australian tax authorities and is added in the individual's online I-T return form. Other countries, which have a pre-filled I-T return mechanism in place, in some form or the other, include Chile, Estonia, Finland, Iceland, Norway, Slovenia and Spain.

Suggestion: In India, the taxpayer's personal information is available based on the past I-T returns. In addition, details of tax deduction at source are available in Form 26AS (which is the annual tax statement available on the I-T department's tax portal). We could take this a step further as PAN is linked to almost all transactions. Data drawn from banks (such as interest on FDssavings accounts, interest paid or repayment of loans); data from employer on salary earned, to name a few, could be easily collated and a pre-filled return made available to the taxpayer.

E-assessment: It reduces interface with the I-T authorities, saves time and is believed to even cut down on corruption.In Brazil, a multi-layered tax digitisation project (called SPED) enables tax authorities to make inquiries via email, including providing a link to the tax authority's web page, where taxpayer's responses can be submitted.

Suggestion: India has taken a step in this direction by way of a pilot. This needs to be rolled out pan-India and various drawbacks in the existing system removed.

Restructuring of I-T slabs: Fewer I-T slabs or even a flat tax rate without additional surcharge or cess simplifies I-T calculations and provides administrative ease. Less complexity translates into more tax compliance and even broadening of a country's tax base, something which is sorely needed in India.

Countries such as the UK and Denmark have a three-tier I-T slab structure. Singapore, Romania, Switzerland, Czech Republic, Hungary and Saudi Arabia have a flat tax rate applicable at all levels of income.

Suggestion : India follows a four-tier I-T slab structure where the tax rate increases with the level of income. Those earning taxable income of Rs 2.5 lakh or less, pay no tax. Whereas the highest slab of 30% starts upward of Rs 10 lakh. Super rich (having a taxable income of Rs 1 crore and above) pay an extra surcharge which brings their effective tax rate to 35.54%.Reducing the number of I-T slabs and removal of surcharge, education cess and secondary and higher education cess will be welcome.

Joint filing of I-T returns: It reduces overall I-T liability of a couple and reduces the compliance burden. The US allows joint I-T return filing for married couples, irrespective of whether both spouses are working or only one of them is. Separate and higher I-T slabs are prescribed for couples filing a joint I-T return. Also, a higher standard deduction and a variety of I-T benefits are applicable for joint filers that would not otherwise be available. In addition to I-T benefits, joint filings also reduce the administrative burden. reduce the administrative burden.

Suggestion: At present, India has in place clubbing provisions. Any income earned by a spouse from investments made by the taxpayer is clubbed in the taxable income of the taxpayer. India could take this a step forward and introduce joint filing.