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Financial planning made easy: Government to share income data with intermediaries in real time

Tax planning for individuals may get a boost as the government prepares to share the income and tax liability data of individuals with tax and investment planning portals on a real-time basis. But first, there might be a privacy hurdle to cross.

June 17, 2022 / 11:51 AM IST

Typically, income-tax planning is done towards the end of the financial year, when there’s very little time to decide between tax-saving options such as a home loan, pension contributions, equity-linked savings schemes or life insurance policy.

Now, technology may come to the rescue. The income tax department plans to share the taxation records of individuals with select companies – tax-filing and tax-planning portals typically referred to as e-return intermediaries (ERI) – apart from data about your income and expenses on an ongoing basis.

This would be done via API license being granted to select companies. In simple words, external firms, like say a bank or your wealth management portal, would need to apply for a license with the government to be able to fetch income - tax tax data from the government systems. This transfer is done through a system more commonly known as API or Application Programming.

The aim is to help the intermediaries offer financial advisory services as well. The tax department is said to be putting systems in place to ensure that taxation, financial planning and filing are streamlined without much manual intervention.

Apart from ERIs, financial service providers such as banks, non-banking firms, financial planners and account aggregators can apply to get access to the income-tax data of individuals. Basically, any intermediary that can deal with your money can apply for the API.

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“Financial portfolio solutions will be derived from account aggregators, where each individual will be able to track all his account statements (banking, investments, taxes etc) in one place,” said Archit Gupta, founder of Clear, a tech company that builds platforms for clients to run their finances. “Account aggregator networks are working towards making these solutions viable for consumption. But it is still in the works and will take a few more months for solutions to be consumable,”

Getting access

Sudhir Kaushik, cofounder of TaxSpanner.com, an income-tax information and tax-planning portal, told Moneycontrol that it intends to apply to offer the API driven service.

“To streamline holistic financial planning, we would be tying up with corporate distributors so that taxpayers not just file taxes with us, e-verify the returns on our portal but also invest or take valid action to enhance tax savings. This service would offer them a 360-degree overview and help them secure the financial future,” said Kaushik.

This is not the first time the government has taken up this initiative. Kaushik said that in 2011-2015, such information-sharing was undertaken by the Central Board of Direct Taxes and that TaxSpanner had offered tax filing and e-verification clubbed together as a service.

“Assesses were not required to log-in to the tax portal to e-verify the returns as the same could be done through our portal. But the service was discontinued. Now it will be offered once again,” Kaushik added.

He was referring to the process of filing income-tax returns and verifying them on the income-tax portal through an Aadhaar number and a one-time password.

Earlier, when access was given, some misuse of personal income-tax data was reported and the facility was withdrawn.

How will this help?

The system will track the money habits of people and suggest better ways of saving in a more tax-efficient manner.

For instance, if you could save Rs 35,000 in taxes by opting for a home loan, the system will throw up such options on a real-time basis, based on your salary credits through tax deduction at source (TDS) mapping, which is captured by the income tax department.

The system will alert you about potentially high taxes if you do not take action. Once a home loan option is offered, then you can choose from among the various offers directly on the tax aggregator’s portal.

“The patterns observed in financial behaviour linked to advisories can be automated. This helps advisors on the one side as they need to apply their mind less and technology takes care of most of the things. On the other side, the user gets seamless, tech-enabled, do-it-yourself experience in expert-assisted advisory,” said Sujit Bangar, founder of Taxbuddy.com, a tax and investment planning portal.

Bangar said his firm is considering applying for the licence.

Another way the tax department’s move could benefit you is when tax is deducted at source on fixed deposit interest. Based on such data feeds that your tax and investment web portal receives, a tax-planning solution could pop up on your screen the next time you log in, offering better investment routes such as mutual funds.

Individual approval

However, given the highly sensitive nature of personal income-tax data, ERIs must first obtain your consent.

“This data belongs to the individual and it can’t be used without his/her consent and authentication,” said Bangar.

“ERIs will take tax assessees’ consent through a one-time password-based system to offer any tax-related services,” said Gupta.

The consent for sharing tax record data can be withdrawn at any time. Once accepted, tax aggregators or financial services companies can offer automated insights based on one’s financial transactions over the years and even suggest solutions.

It’s important to select a service provider that has invested in the right and secure systems. Kaushik of TaxSpanner also indicated that the government may also put limitations to the amount of data it would be willing to share with ERIs.

“Account aggregator systems will always have enough security layers,” said Gupta.

Fewer tax-filing complications

Typically, before filing tax returns data is collated from bank and share account statements to ascertain the tax liability and how much to invest to save taxes.

According to Gupta of Clear, the system is designed for individuals to have all the information pre-filled while filing taxes for high accuracy and to reduce the risk of getting notices.

“It allows individuals to be able to report taxes on all income sources and not forget anything. Through this, the income tax department wants to aim for ‘one time no notice’ tax filing accuracy for faster processing and benefits for individuals,” said Gupta.

A tax aggregator that has obtained your consent on data sharing would be able to directly access your capital gains, interest earned and investment details and help you avoid errors in calculating how much tax was deducted at source and other mistakes in filing returns.

“The data would be synced with the system and we wouldn’t have to ask for too much information at the tax-filing stage,” said Kaushik.

The tax department may also stand to gain from this move as it offers ease of compliance through the service and helps reduce tax evasion.

“Currently, wilful defaulters are hiding in the garb of ignorance. But real-time data would ensure that they do not escape valid taxes due to information reporting at various levels by not just banks and mutual funds, but also by jewellers, schools, electricity utility providers, hotels and even passport offices. Social media accounts too are being tracked through phone numbers that are already linked with Aadhar and PAN,” said Kaushik.

What’s in it for the taxman? Well, evading income tax will just get harder.
Khyati Dharamsi is covering personal finance for the past 15 years. Taxation, insurance, mutual funds and gold are her areas of focus.
first published: Jun 17, 2022 09:15 am
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