Budget 2024: `If not direct tax rate cuts, then at least ease of compliance’

Expectations on ease of compliance are always on the rise, especially since tax authorities have used technology to simplify tax return filing and related processes.

With the Union Budget (Interim) scheduled to be presented in just about a week from now, individual taxpayers are looking forward to tax sops and savings to help them tide over financially and make the process easier.  Last year’s budget had subtly indicated that the preference was for a simplified tax regime (new tax regime) over the regular (old) tax regime. On that note, taxpayers now look forward to changes that could make compliance easier and more convenient.

Changes to procedures to improve ease of compliance

Expectations on ease of compliance are always on the rise, especially since tax authorities have used technology to simplify tax return filing and related processes. In view of the same, the budget could bring in a few changes to the procedural aspects to improving ease of compliance, such as e-verification through foreign mobile numbers, tax payment without India bank accounts, tax refunds to overseas bank accounts, simplification of TDS procedures while buying immovable property from an NRI seller, additional information in the Annual Information Summary (AIS), and so on.

Expansion of cities listed as “metropolitan”

Indian cities have witnessed a spurt in their growth rates in the past, attracting many investors to set up offices in cities such as Pune, Bengaluru, and Hyderabad. While the regular tax regime is still available, these cities could be included as metropolitan cities, which would boost tax savings to those taxpayers claiming House Rent Allowance (HRA) by allowing 50 percent of their basic salary for rent payment in these cities.

E-verification using foreign mobile numbers / 2FA

One of the expectations is to allow for e-verification using emails / overseas mobile numbers for non-residents. While Aadhaar OTP and net banking EVC covers a substantial portion of the individual taxpayers, those who are outside India without an India mobile number, are currently at a disadvantage of not being able to e-verify their tax returns. If the tax portal could expand e-verification options to cover OTP to foreign mobile numbers or have a two-factor authentication (different OTPs to foreign mobile number and e-mail address), it would reduce paperwork and also administrative tasks such as tracking the receipt by the tax office, applying for condonation of delays and so on. Alternatively, the time limit of 30 days should be extended so as to facilitate verification through the physical mode to allow for transit time.

Tax payment from foreign bank accounts

Similarly, at present, tax payments can be made by net banking, debit cards, NEFT/ RTGS, etc. Taxpayers such as non-residents who would need to pay tax, require a bank account in India. To facilitate tax payment from outside India, a facility to deposit tax from overseas bank accounts could be introduced.

Tax refund to foreign bank accounts

Conversely, tax refunds are currently possible only to verified bank accounts in India. Individuals who had to close their bank accounts upon leaving India or who do not have a bank account in India, are unable to receive pending tax refunds, unless a new bank account is opened in India.

The Employees’ Provident Fund Organisation (EPFO or PF office) has the facility to remit PF withdrawal proceeds into foreign bank accounts. The income tax portal could also bring in a similar facility. This would reduce unpaid / failed refunds.

TDS on purchase of immovable property

Purchase of immovable property is a transaction requiring the buyer to deduct tax at a specified rate on the sale value. While this is relatively easy to comply when the seller is a tax resident of India, the requirements are manifold for the buyer if the seller is a non-resident. In the latter situation, the buyer is then required to obtain TAN (Tax-deduction Account Number), file e-TDS returns at the end of the respective quarter and complete responsibility by downloading the Form 16A after the eTDS return is processed.

As purchase of immovable property is not a recurring transaction, compliance with TDS could be made simpler by aligning the procedures with that of a resident seller.

For example, a challan-cum-statement (similar to the 26QB) could be introduced for TDS remittance by buyers using their PAN (as against TAN) mentioning PAN of the NRI seller. This would be captured in the 26AS statement of both buyer and seller.

This move would facilitate faster processing time and avoid inactive TANs.

Additional information in AIS

Tax authorities have brought in significant changes to data gathering and reporting, using technology. One of the examples of these measures is the Annual Information Summary (AIS). AIS captures information relating to payments where tax is deducted/ collected, bank interest, dividends, sale and purchase of capital assets, foreign remittance, refund from income tax department, rent receipt by landlords, etc., which form the basis for tax return preparation.

While AIS captures a lot of information in the case of purchase / sale of securities, it could also include cost and date of purchase (acquisition) of these securities, thus helping in accurate computation of capital gains, without the taxpayer having to go through multiple records for this information.

Revision of tax rates

Last but not the least, individual tax payments look forward to better tax savings in terms of lower tax rates and higher income slabs. In the past, the simplified (new) tax regime has seen lower rates and wider income slabs than the regular (old) tax regime. However, one has to bear in mind that budget to be presented on February 1 is an Interim Budget. If the Finance Minister’s speech at the CII Global Economic Policy Forum 2023 Summit is any indication, the expectations on changes to tax rates would need to be tempered.

Nevertheless, changes to procedures and enhancing the use of technology will directly contribute towards improving the process and would go a long way in ensuring better compliance.