Will the proposed common ITR help in tax compliance?

In line with the government’s direction to simplify the tax filing process and increase the ease of compliance, the income tax department has brought in various changes in the process by revamping the income tax portal, introducing the pre-filed ITR forms, etc.

Going a step ahead, the Central Board of Direct Taxes (CBDT), on 1 November 2022, released the Proposed Draft Common Income Tax Return Form (Common ITR Form) and requested inputs from stakeholders and the general public by 15 December 2022. The proposal has been made with the intent to make the return filing process user-friendly and align with international best practices. Some of the key points of the draft Common ITR Form, as it stands today, are mentioned below to understand what this form is all about. However, based on the stakeholders’/ public comments, this may undergo changes.

Common ITR Form

CBDT has come up with the proposal to merge all the existing ITR forms except for ITR 7 (applicable for trust, non-profit organizations, etc.). Also, the taxpayers can continue filing the tax return using either the existing ITR 1 and ITR 4 forms (as applicable) or the Common ITR Form, as per their convenience.

Common ITR Form is designed to customize the ITR form to the taxpayer’s facts, with the schedules applicable to the taxpayer, based on certain questions (wizard questions) answered by the taxpayer. Further, the questions are framed in such a manner that taxpayers are only required to answer ‘yes/no’ and if the answer to any question is ‘no’, the linked follow-up questions will not be displayed to the taxpayer.

The Common ITR Form will continue to ask for certain essential details such as basic information, schedule for computation of total income (Schedule TI), schedule for computation of tax (Schedule TTI), details of bank accounts, and a schedule for the tax payments (Schedule TXP), which are applicable to all the taxpayers. The other schedules will be visible and required to be filled only upon the wizard questions being answered ‘yes’ by the taxpayers.

While merging all the ITR forms, the government has also looked into including additional questions for better reconciliation of data and increased compliance. A few of the fields which have been added in the proposed Common ITR Form are the details of the lender of the housing loan and details requesting information for taxation of income from Virtual Digital Asset (VDA). Specific attention has been given to VDA by inserting a new schedule wherein the taxpayers would be required to provide details of income from VDA, and cost of acquisition incurred, if any.

Some benefits of the common ITR Form:

· As per the existing ITR forms, taxpayers are required to select the correct ITR form applicable to them based on the heads of income and income earned. To put this issue to rest and avoid confusion among the taxpayers, the Common ITR Form will be available to all taxpayers (with the exception of ITR 7) and thereby increase ease of compliance.

· Once the taxpayer answers the wizard questions, the utility will be customized and only the applicable schedules for questions answered as ‘yes’ will be visible. For example, if the taxpayer has only long-term capital gains (LTCG) from the sale of equity shares, then applicable fields of schedule CG relating to only LTCG shall be visible to him. This brings ease to the process of filing returns.

· Instructions have been added containing the directions regarding the applicable schedules to assist in the filing of ITR.

· It also facilitates increased scope of pre-filling by the reconciliation of third-party data available with the tax department vis-à-vis the data to be reported in the ITR, to ensure that all the sources of income have been reported by the taxpayer and thereby reducing the compliance burden on the taxpayers.

As this is a draft Common ITR Form proposed by CBDT, there may be certain modifications/changes when the final form is introduced for tax filing, upon receipt of inputs from stakeholders and the public.

Amarpal S. Chadha is tax partner, EY India. Shanmuga Prasad, director, EY India, contributed to this article.