What Proposed Common ITR Means For Taxpayers

The Income Tax Department has unveiled a draft common return to ease the filing process and encourage greater compliance.

The proposed common ITR will allow taxpayers to file only the parts applicable to them instead of mandatorily going through all the schedules, irrespective of applicability.

CBDT has sought inputs from stakeholders by Dec. 15 on the draft common ITR.

The new ITR proposes to merge all the existing returns of income, except ITR-7.

The older system of ITR-1 and ITR-4 will also continue, offering taxpayers the choice of filing their return in either the existing form (ITR-1 or ITR-4) or the proposed common ITR.

ITR-1 is filed by Individuals with an income up to Rs 50 lakh with income from salary, one house property/other sources (interest). ITR-4 can be filed by individuals, Hindu Undivided Families and firms with total income up to Rs 50 lakh along with income from business and profession.

Anand Dhelia, a chartered accountant and partner at Vialto Partners, said ITR-1 and ITR-4 account for nearly 65% of the total returns filed each year (around 6.5 crore).

The taxpayers would be required to answer questions that apply to them and fill in the schedules linked to those questions where the answer has been given as ‘yes’, saving on filing time and effort.

The new form will facilitate system coordination, Amarpal Chadha, tax partner and India Mobility Leader at EY, said.

"Aligned with the international best practices, the proposed form is designed to ease the compliance process, facilitate reconciliation with third-party data, and improve the overall tax return filing experience for the tax payer."

In its announcement, the department explained that the common ITR will have some mandatory sections (A-E), which collect general information about the taxpayer like the residential status, sources of income applicable, schedules for tax computation, etc.

On the basis of this data, non-applicable schedules will be disabled for taxpayers.

"Currently, several individual taxpayers struggle with choosing the right ITR, which may be based on income level, source of income, residential status, etc., and redoing the tax filing if an incorrect tax form is selected. Also, they fill in the sections that may not apply to them," said Aarti Raote, partner, Deloitte India.

Raote, however, had a word of caution. "The tax department should be cognizant that frequent changes in the tax filing process create discomfort for the taxpayers, especially for those who do not take the assistance of service providers and need to learn the new process afresh."

Just last year, the new portal was launched, which had several technical glitches, she said. "Hopefully, the experience for the taxpayers is a lot better this time."

Though largely similar to the current ITRs, Dhelia said requirements have been added like details of housing loan, PAN of the vendor, outstanding amount, and date of issuance of tax residency certificate.

"The expectation would be to make the filing process more robust and automated wherein details like capital gains, etc., would be directly filled into the forms," he said.