Finance minister Yashwant Sinha's strategy has so far been to simplify tax norms together with improving tax compliance. The introduction of the "Saral" form for the individual tax payer is one such example.
Recently the ministry also announced changes in Form 3 C D under section 44 A B of the Income Tax (I-T) Act. This is a tax return form for businessmen with incomes of over Rs 40 lakh. These changes, however, focus more on enforcing compliance than simplifying the procedure.
Let us take a look at how it works.
A look at the new form and you would realise that the number of entries that one has to make while filing these papers with the income tax authorities has increased from 25 to 32. "Earlier, there were about 45-50 points that had to be entered in the form, now that number has increased to over 100," says chartered accountant Ashok Gupta, adding, "It has been completely overhauled."
So, how did this happen? There have been many additions made, as is evident from the number of entries that an assessee has to make. The most important being the number of entries that are now required to be made regarding excise audit.
For example, the assesses have to make entries on cost audit (entry number 30 in the form), audit under the Central Excise Act (entry number 31 in the form) and also fill in the accounting ratios like gross profit/turnover, net profit/ turnover, stock-in-trade/turnover and material consumed/ finished goods produced.
Then the new form also requires an income tax assessee to disclose the amounts of Modified Value Added Tax (Modvat) credits availed during the previous year of assessment and its treatment in the Profit and Loss (P&L) account as also the treatment of outstanding Modvat credits in the books of account. Then you also need to quote your income tax permanent account number (PAN).
The ratios aren't difficult to arrive at as any businessman would be doing these basic calculations. "These are ratios that reveal the basic trend of the way the business is doing. During tax assessment when these ratios come up it will explain how and why the variations have come about," says a tax consultant in a multinational consultancy firm.
Entries 30 and 31, however, are things which weren't mandatory for filing income tax returns and these two are bound to increase the weight of the return papers as it is also mandatory to attach copies of the audit reports.
Then there are things like partners and their profit sharing ratios in case of Articles of Association and the change of partners. The new form also requires maintenance of accounts, even if it is in a computer, which the government hopes will improve compliance. Even asking the assessee to submit PAN is a decision in the same direction. Now the excise officials can cross check with the income tax department and vice versa.
Also, if there is a quantitative effect in the profit and loss accounts as a result of the change in the accounting method, it is to be disclosed. "This will help us in checking evasion due to change in accounting methods," says an income tax official.
Now there is also a requirement to disclose expenditures by way of penalty for violation of law. The section-wise deductions warranted under chapter VI-A, and details of tax deducted at source are also required to be furnished. The deductions would include those under section 80C and 80V.
One of the deletions is the disclosure on the method of valuation of opening and closing stock. In the new Form 3 C D, the method for evaluating opening stock is not required. The new form also requires details on depreciation allowance.
But why has the government decided to make these additions when it is talking of simplifying tax administration? "It's not that we are making things any more difficult for tax-payers. While we simplify tax administration it is also important to improve tax compliance," says an income tax official.
Adds a senior excise official, "The idea is to help us in better enforcement. Now we can compare our data with those that our colleagues in the Income Tax department have. Earlier we had no clue on if someone had filed his Income Tax return or not and they had no idea about what the same taxpayer was doing on the excise front. After all we have to bring about a better tax administration," he says.
With things not so saral for the businessmen who are filing their income tax returns in Form 3 C D, the chartered accountants _ who as a result of the simplification of norms were expected to be done away from the system, if one is to believe the tax administrators _ clearly have a few more years of brisk business lying ahead of them.
