Key Details To Know How CBDT’s Proposed Income Tax Return Filing System Will Work?

In order to simplify the filing of ITR returns, the Central Board of Direct Taxes (CBDT) has issued a draft proposal to introduce a common income tax return (ITR) form. It said the proposed draft ITR takes a relook at the return filing system in tandem with international best practices and proposes to introduce a common ITR. Will all ITR forms be abolished and only one ITR introduced? Check the CBDT’s draft proposal on ITR filing.

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What Is the Current ITR System?

Currently, there are seven ITR forms applicable based on the amount of income earned, sources of income, and the category of the taxpayer (individual, HUF or company).

“At present, taxpayers are required to furnish their income tax returns in ITR-1 to ITR-7 depending upon the type of person and nature of income. The current ITRs are in the form of designated forms wherein the taxpayer is mandatorily required to go through all the schedules, irrespective of the fact whether that particular schedule is applicable or not, which increases the time taken to file the ITRs,” the CBDT said in its draft proposal issued on Tuesday (November 1).

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What Is New In CBDT’s New Common ITR Form?

The country’s highest authority in direct taxes, CBDT, said the proposed draft ITR takes a relook at the return filing system in tandem with international best practices. The scheme of the proposed common ITR is as follows:

1) Basic information (comprising parts A to E), Schedule for computation of total income (Schedule TI), Schedule for computation of tax (schedule TTI), Details of bank accounts, and a schedule for the tax payments (schedule TXP) is applicable for all taxpayers.

2) The ITR is customized for taxpayers with applicable schedules based on certain questions answered by the taxpayers (wizard questions).

3) The questions have been designed in such a manner and order that if the answer to any question is ‘no’, the other questions linked to this question will not be shown to the taxpayer.

4) Instructions have been added to assist the filing of the return containing the directions regarding the applicable schedules.

5) The proposed ITR has been designed in such a manner that each row contains one distinct value only. This will simplify the return filing process.

6) The utility for the ITR will be rolled out in such a manner that only applicable fields of the schedule will be visible and wherever necessary, the set of fields will appear more than once.

Will All ITR Forms Be Merged, And Only One Form Will Be There?

No. ITR-7 will not be merged into the common ITR form, as per the CBDT proposal. ITR-7 is for taxpayers including companies that are a charitable or religious trust, political party, research association, news agency or similar organizations specified in the Act.

This apart, the current ITR-1 and ITR-4 forms will continue. There will be an option for taxpayers to file the return either in the existing forms (ITR-1 or ITR-4), or the proposed common ITR, at their convenience.

Aarti Raote, partner at Deloitte India, said, “Currently, several individual taxpayers struggle while choosing the right ITR that 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. For e.g. a non-resident individual with only salary income may choose to file ITR 1 and eventually realise that he has to file Form-2 as he is a non-resident. Hence, with the proposed common tax return, these challenges would hopefully be eliminated.”

Raote, however, added that the tax department should be cognisant of the fact that frequent changes in the tax filing process create discomfort for the taxpayers, especially those who do not take the assistance of service providers and need to learn the new process afresh.

“Last year, the new portal was launched which had several technical glitches. Hopefully, the experience for the taxpayers is a lot better this time,” Raote said.

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