Digitisation And Automation Haven't Done Enough To Improve Ease Of Filing Income Tax Returns

Notwithstanding the computer capture of annual information statement (AIS) and the linking of Aadhaar with permanent account number (PAN), a large number of tax filers are facing multiple glitches while filing their IT returns (ITR)), analysts with chartered accountant firms assisting many with the process said.

The AIS is an account of each taxpayer’s income inflow and other financial transactions including tax deducted at source, interest and dividend inflow, personal information, and tax payment including TDS-related information. This is displayed on the taxpayer’s portal.

As the deadline of July 31 for filing ITR for 2023-24 draws closer, a simple Google search on the Internet will tell you how multiple problems including the basic exercise of even logging into the e-portal have caused problems for the tax filers.

Gathering “innumerable” statements and financial data and fixing mismatches in personal data are among the most common glitches that tax filers are swamped with. The frequent changes in the tax structure and filing system have made things even more complicated, users aver.

“Filing IT returns is an arduous task even after the digitisation drive. Even now, I have to seek professional assistance and run for various documents and statements—just as it was before the digitisation exercise.

"On top of that, if there is any inadvertent discrepancy, you receive an immediate notice from the tax department. It is almost like you are made to feel like a tax evader,” Ritu Kapoor, an educationist, living in central Delhi said.  

Why Do Tax Filers Face Problems?

Besides a lack of awareness, certain financial engagements and dealings are yet to be automated. For example, incomes earned as interest through cooperative bank deposits do not get reflected automatically under the AIS, leading to discrepancies in information generation. Currently, there are seven ITR forms for taxpayers based on their income level, source of income and category.

A tax filer is required to state his/her income accrued from all sources such as through employee stock ownership plans (ESOPs), rents, gold bonds, interests from banks including co-operative lenders, sale of properties, derivatives, or mutual funds among others.

“The introduction of the e-filing portal by the IT department has streamlined the ITR filing process. The online portal is designed to be user-friendly and provides step-by-step guidance for filing returns,” K Raghu, former President of the Institute of Chartered Accountants of India (ICAI) told The Secretariat. However, Raghu added that though pre-filled forms are helpful, they can sometimes contain errors or incomplete information, requiring manual corrections.

“Gathering all necessary documents and ensuring they are accurate can be time-consuming and confusing,” Raghu said, adding that the increased reliance on digital platforms has also led to rising concerns about data security and privacy.

For self-employed individuals and businesses, the process of filing tax returns is even more cumbersome due to stringent compliance requirements.

“With such challenges emerging, the majority of taxpayers prefer to seek professional assistance. This defeats the purpose as the Narendra Modi government had promised to simplify the process so that ordinary taxpayers faced no problems,” an income tax department official said.

Sources said that with all the complexities, the exercise may take another two to three years to become seamless.

The tax department recorded an increase of 9 per cent in ITRs for 2023-24. According to an official statement, until end-December 2023, more than 8 crore ITRs were filed for the assessment year 2023-2024 compared to 7.51 crore filed in the corresponding period in the previous year. But even with the increase in the number of tax filers, only about 1-2 per cent of Indians have actually paid tax.

Data protection Needed

Over-dependence on digitisation has also led to a rise in fraud and cybercrime. “The government is now looking to strengthen the framework relating to data security and protection..that is one of the key challenges for the current government,” an insider said.

The rules flowing from the Digital Personal Data Protection Act, which was approved in Parliament last year, are expected to be implemented in the next few months. Along with this, there could be amendments in the norms governing the IT digital framework as challenges from artificial intelligence including deepfakes emerge.

The issue of data protection in the tax space has come into focus, especially after a US Internal Revenue Service (IRS) case of data theft by an employee. In January, Charles E. Littlejohn was sentenced after he stole confidential IRS data relating to the wealthiest individuals and families in America.

As the government aims to expand the tax net, ease of filing income tax returns is an area that needs more work. Unless the tax filing process is simplified for common assessees, the digitisation exercise will not pay the dividend that the government is looking for.