Disclosures and disincentives

April 21, 2015 12:34 am | Updated November 16, 2021 05:15 pm IST

The hasty and perfunctory manner in which >new requirements were sought to be included in the income tax return forms from the assessment year 2015-16 does not augur well for hassle-free tax administration. Thankfully, the revenue authorities made a >quick retreat after Finance Minister Arun Jaitley ordered a review , but the overall impression is that tax authorities are constantly trying to introduce new forms of practical difficulties in the name of improving tax administration, widening the tax base and unearthing black money. The latest changes sprung on the public required assessees to disclose all instances of foreign travel during the previous year, the countries visited and expenses incurred from one’s own sources by resident Indians in the course of such travel. In addition, the forms asked for disclosures on the number of bank accounts held by an individual at any time in the previous fiscal, including those that were closed, along with details of the banks, IFSC code and joint account holders, if any. On the face of it, there may be nothing wrong in seeking such disclosures. Many people do park undisclosed sums in additional bank accounts and incur expenditure during foreign travel, and encouraging such disclosures would indeed enable the taxman to keep an eye on the possible involvement of unaccounted money. However, existing provisions and procedures enable the tax authorities to monitor such activities, and all that such new measures will achieve is a needless increase in paperwork.

For instance, know-your-customer norms ensure that every bank account is linked to a Permanent Account Number, and interest accruing in such accounts is easily traceable. Similarly, immigration authorities do have a record of foreign trips, and passport entries can be used to verify the travel details of anyone under scrutiny. It may not be easy for everyone to maintain separate accounts of expenditure incurred from personal sources and spending made on their behalf by companies or others sponsoring foreign trips. The income tax authorities often argue that the existing tax base is inadequate and enhanced forms of scrutiny are required to enable more people to be brought under the tax scanner. For a country with as large a population as India’s, the number of assessees is obviously too low. However, the moot question is whether it is wise to introduce measures that will make it difficult to file tax returns and discourage potential assessees from entering the tax net voluntarily. The government’s efforts to curb and unearth unaccounted money require wide public support, but at the same time the authorities should not do anything that may deter people from making the shift from evasion mode to tax compliance.

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