Last Updated on May 9, 2018 at 10:42 am
We cannot afford to get rid of income tax, but why can’t we get rid of income tax returns? Difficulty in figuring out which ITR form to use, which rows to fill, delays in processing, delay in refunds, hassles with TDS, irritating notifications to respond to, I could go on. All this makes you want to ask, is there a way for the government to collect the correct tax amount and save us the hassle of filing returns? Perhaps what I suggest in this post might seem childish to taxation experts, but this is a scratch I need to itch. I welcome experts and non-experts to (a) agree, (b) partially agree or (c) disagree with me (now where have I see this multiple choice before?!)
It is a no-brainer that the salaried class are among the most regular taxpayers in the country. For the simple reason that they do not have a choice. Employers will have to report income paid out and tax deducted as per slab to the IT dept. This means, that one has no choice but to file returns if the income after deductions is taxable. Bank deduct TDS by default unless we submit forms 15H/G (which in many cases is either wrong or fraudulent). If we extend the same accountability to all financial transactions we can do away with return filing.
Consider the following: Tax from your income is deducted by your employer. A default 5% TDS is deducted by the bank, mutual funds or depository participants can do the same for stocks, bonds and mutual funds (already done for NRIs). The full capital gains tax can be withheld by the AMC/DP until validation by us and the ITO. All this can be done with existing information and a single ID no – the PAN card.
Say every April first week, the ITO sends everyone holding a PAN a list of all transactions that occurred in their name the previous financial year. This will have all cash inflows to our bank accounts, the interest earned in FDs, RDs, small saving schemes, capital gains incurred on relevant transactions – stocks, bonds, gold ETFs, cryptocurrency etc. With a little effort, the ITO can trace rental income even from landlords refusing to part with PAN just from the residence address. Fraudulent income clubbing practices like “investing in wife’s name” can be detected.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! 🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
The point is, once we get a list of all financial transactions done in an FY from the ITO and we need to account for them, classify them as income, CG, tax-exempt and so on, we are automatically filing our tax return. They already have an account of all our dealings and this will way will only be seeking our validation. With all details already available, we only need to verify, ahem (a) agree, (b) partially agree or (c) disagree!
How about offsetting capital gains? What if the TDS is higher than necessary? Employers already account for tax savings. Banks or AMCs or DPs can withhold TDS but not actually credit to the ITO. Upon our validation and excess TDS can be credited back to us and the whole process can be a lot smoother with a little will. Losses can be automatically offset or carried forward. The ITO will only gain from this move. Their tax collections will increase as cheating is not possible and it is less paperwork for them and us.
We have all the machine power, the security, the know-how to pull this off. Sure there will be bugs and glitches but given a bit of time, things will iron out. The question is, do we have the will to accept a system that deducts tax from every transaction that we make and adjusts after our validation at the end of the FY? Considering how we crib for everything, I would guess not.
As a society, we see tax as a burden and not as an investment. This is not going to change anytime soon, so tighter controls are necessary and in this case, will result in less work for us. The salaried middle-class in this country anyway pay most of the tax that they need to and will not be affected much by this.
With GST firmly in place, it should not be difficult to trace profit and loss by business owners and independent service providers and implement the same with them. Small business owners, Independent professionals like doctors who get paid often in cash or real estate dealings can be a problem among others. However, technically no real estate dealing should be in cash now. So accountability is not difficult if every builder is forced to report transactions. It might even regularize the market.
What about privacy? What about it? Does it exist now? There is no new data to be collected. Only data that should be reported by us is being reported by the financial institution involved and we validate it. With a little effort, I strongly believe tax returns can be replaced by a simple validation system It may help everyone concerned. Naturally, it will not solve every issue that we or the ITO faces, but I think will benefit at least regular return filers.
What do you think? I don’t claim to see all ends in this matter, but as far as my thinking takes me, there is no disadvantage and it will only reduce the current hassles that we face. Now over to you.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)