Budget 2018: Number of proposals attempt to simplify taxpayers' lives

E-assessment, amendment of Section 143(1), and introduction of standard deduction aim to make it easier for taxpayers to comply with tax laws

In his last full-fledged Budget before the general election due next year, the finance minister came up with a number of proposals that will simplify the lives of taxpayers. These steps aim to reduce procedural hassles, make it easier to be compliant, and reduce the scope for corruption.     

E-assessment of taxpayers: A key proposal in the Budget is to amend Section 143 of the Income-Tax Act, 1961 (Act), and thereby empower the government to prescribe a new scheme of assessment. This new scheme is expected to make the process of assessment more transparent and enhance accountability by eliminating the interface between tax officers and tax payers. In fact, the Central Board of Direct Taxes (CBDT) had already started work on the feasibility of this scheme a few months ago when it constituted a committee to prepare a roadmap for the faceless and nameless e-assessment of tax payers. Once the scheme is ready, it will be rolled out on a pan-India basis. The amendment of Section 143 will facilitate its implementation. 

In the matter of tax administration, a major concern for the government has been how to curb tax leakages. Over the past few years, it has been working to plug loopholes in domestic tax laws and create a simpler tax regime. Prime Minister Narendra Modi has been vocal in his mission to create an environment that instills confidence among honest taxpayers and uproots corruption. With this motive, the government has been launching various initiatives in a phased manner to create a simpler tax administration system.  

In 2016, as part of the government’s initiative towards e-governance, the Income-Tax Department brought about the digital transformation of its processes to a significant extent by conducting various tax proceedings through the ‘e-proceeding’ facility available on its web site. This was launched on a pilot basis in select metro cities. The objective was to reduce visits by taxpayers to income-tax offices and eliminate their interface with the taxman, thereby curbing corruption. The functionality to conduct e-proceeding was made available on the Department's website for all types of notices, questionnaires and letters issued under various sections of the Act. Taxpayers can decide whether to conduct their dealings over the e-system or through the existing procedure of manual submission of documents by visiting the tax office. Once the pilot run succeeded, the e-assessment facility was extended to 102 cities in 2017. The government now proposes to implement it on a pan-India basis. 

E-assessments offer multiple advantages, both for tax payers and the government. Through enhanced use of technology, cases will be selected for scrutiny by the system, without human intervention. Someone who is in City A will be scrutinised by an officer who may be based in City B. This will eliminate person-to-person contact and minimise the discretion of tax officers, thereby reducing the possibility of corruption. Exchange of information will happen electronically and there will be no need to physically visit the tax offices. This will be of great help to the salaried class which usually finds it difficult to take out time from its official duties to visit tax offices and hence has to hire professionals. Even those taxpayers who work abroad will benefit as they will be able to provide details online from wherever they may be residing. As for the tax authorities, team-based assessment will help them deploy their resources optimally and operate more efficiently.   

Amendment of Section 143(1): Another proposal in Budget 2018 that merits attention is amendment of Section 143(1) relating to summary assessment. At present, while processing the return of income a tax officer can make an adjustment for any income that appears in the tax credit statement (Form 26AS) or tax withholding certificates (Form 16/16A), which has not been included in the return of income. With returns being processed centrally, additions in the returned income are taking place wherever there is mismatch of income in the return vis-a-vis Form 26AS to chase tax payers to pay the demand. 

According to the proposed amendment, tax officers will no longer be able to make any adjustment in returned income on the basis of income appearing in Form 26AS or Form 16/16A at the time of summary assessment. This amendment will apply from financial year 2017-18 onwards and will save tax payers the trouble of filing unnecessary rectification applications. However, where any mismatch between returned income and income as mentioned in Form 26AS or Form 16/16A exists, tax officers will have to call for further details and examine the matter more deeply instead of passing an order raising a demand. 

Simplification through standard deduction: Another step towards simplification in this Budget is the proposal to introduce a standard deduction and withdraw exemption on medical reimbursement. At present, reimbursement of expenditure on medical treatment of an employee or a member of his family is not taxable to the extent of Rs 15,000. To avail of this tax benefit, employees have to submit medical bills as proof of expenses and employers also have to retain the proof. The withdrawal of this exemption relating to medical expenses reimbursement will obviate the need to obtain bills. It will eliminate situations where employees submit forged bill. The tax authorities, while carrying out a TDS audit, will not have to question the genuineness of those bills. One would not be surprised if more such measures are introduced in the future for other deductions/exemptions as well, such as Leave Travel Allowance and House Rent Allowance, where at present employers are required to obtain and retain proof of expenses incurred. In lieu of these, the standard deduction proposed in this year's budget may be increased.

What the changes mean for you

• Government to roll out e-assessment pan India 
• By eliminating direct interaction with tax officials, e-assessment will reduce the scope for corruption
• People won't have to visit tax office or hire professionals to represent them, and will be able to respond electronically instead
• Proposed amendment of Section 143(1) means tax officials won't be able to raise demand for tax if there is a mismatch between filed return and Form 26AS or Form 16/16A. They will have to call for further details
• Tax payers won’t waste time and effort on filing rectification applications to get these demands deleted 
• Employees won’t have to submit bills after introduction of standard deduction

The author is partner and leader, personal tax, PwC India. The views expressed are personal