Common ITR form will make tax-filing easier, reduce time taken, say experts

Its success, however, will hinge on the quality of online utilities launched along with it

The Central Board of Direct Taxes (CBDT) plans to come out with a common income-tax return (ITR) form that will replace six of the seven forms (ITR-1 to ITR-6). ITR-7, which is applicable to charitable institutions, business trusts, investment funds, etc, will remain separate.

No hassle of identifying correct form

In India, taxpayers find it difficult to identify the ITR form applicable to them as the choice depends on a number of factors. One is type of return filer: individual, company, Hindu Undivided Family (HUF), private trust, or association of persons (AOP).

Another factor is nature of assets held. “ITR-1 form, for instance, is not applicable to those who hold foreign assets or have foreign income; or have income from more than one house property; or are directors in a company or shareholders in an unlisted company,” says Suresh Surana, founder, RSM India.

If an individual’s income exceeds Rs 50 lakh, he can’t use ITR-1. Similarly, a separate form has to be used by those availing of the presumptive tax scheme.

“A common ITR form will ensure that taxpayers don’t struggle to identify the ITR form applicable to them,” says Surana. He adds that taxpayers will also know easily the disclosures (of income types and assets) that they have to make.

While countries like the US still have multiple forms for corporates, and not for  individuals, India has the distinction of having multiple forms even for individuals. “Having a common form will remedy the issue of taxpayers filing their returns using the wrong form,” says Pallav Pradyumn Narang, partner, CNK.

Smart design

The current system mandatorily requires the taxpayer to go through all the schedules, irrespective of their applicability. This increases the time taken in filing ITR.

The common form will be dynamic in nature. The taxpayer will be asked certain questions. If he answers any question in the negative, all the other questions linked to it will not be shown to him. The taxpayer will thus only see the schedules that apply to him.

“The draft ITR will ease the filing of returns and also reduce the time taken to do so by individuals and non-business-type taxpayers,” says Sandeep Bajaj, managing partner, PSL Advocates & Solicitors.

The common form will also offer greater scope for pre-filling of information by the tax department.

Experts believe the common form will improve tax compliance. “Research shows that reduction in complexity increases the rate of compliance,” adds Narang.

Whether the draft common form improves taxpayers’ filing experience will depend on one key factor. “Much will depend on how user friendly the online utility that is launched for tax filing is,” says Surana.  

Key points to remember

• ITR-1 to ITR-6 to be merged into a common form, ITR-7 to remain separate  
• Tax filers will not struggle to find the right form that applies to them
• This dynamic form will ask tax filers questions and direct them to the schedules that apply to them, so tax filing will take up less time and energy
• However, actual user experience will depend on the quality of online utilities launched alongside