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How to maintain tax papers in a paperless environment and not to fall victim to the taxman's roving e-eyes
"Going green or paperless is great in terms of saving environment. However, unless you are careful and have preserved copies of your income and expenditure related transactions, electronically, you may attract the unnecessary attention of the taxman," advised Chartered Account (CA) Ameet Patel. He was speaking on "Don't fall victim to the taxman's roving e-eyes and learn how to maintain tax papers in a paperless environment" a packed seminar organised by Moneylife Foundation and sponsored by Capital First in Mumbai.
 
"Till last year, there was a limit beyond which the Income-Tax (I-T) department could not reopen your past assessments. However, under the Income Disclosure Scheme (IDS) 2016, the tax department has no time limits and the taxman can go back to any number of years. Therefore, we need to save our important documents for posterity!" he said.
 
Mr Patel, former president of the Bombay Chartered Accountants Society (BCAS), who answers tax related queries on Moneylife Foundation’s Tax Helpline on a voluntary basis, said, "We need to ensure that all our emails, e-statements are saved systematically. If possible, maintain separate folders for different types of mails and maintain separate folders for different years. In addition, one can create separate folder inside the mail inbox like bank statement, credit card statements, insurance and I-T related mailers."
 
  
Most tax filings and payments are now to be done electronically. Refunds are also issued electronically. Most banks, mutual funds, brokers and companies are sending warrants, reports, and notices electronically. In such an environment, it is important to preserve records, electronically.
 
The e-governance initiatives of the Indian government now cover electronic payment of taxes, filing of returns, appeals, payment of refunds, assessment and rectifications. Similarly, almost everything in share market, like demat account statements, contracts, applications, allotment, dividend and interest payment is taking place through the electronic platforms. Banks and utilities like telephone and electricity services are also using this method to communicate with customers, he added.
 
He explained in detail on how the I-T departments assesses the income of taxpayer from electronic records. "Large amount of exempt income, large refund claimed in the return interest on bank FD, especially from co-operative banks, mutual fund investments, purchase or sale of immovable property, other large value transactions, including credit card expenses, large donations, capital gains from penny stocks, mismatch in TDS credit and large variance in income as compared to earlier year are main reasons for the taxman to select a taxpayer for scrutiny," he said.
 
"While no tax is payable on exempt income, the onus to prove that such income is actually exempt lies with the taxpayer. And you need to disclose the exempt income, like interest and dividend income, in your I-T return form," Mr Patel said, while explaining ways to preserve e-statements or e-intimations received for dividend income, capital gains, and maturity amount from insurance policy.
 

According to Mr Patel, it is so easy to get a credit card now and one can have multiple cards with multiple reward points. He said, "You use credit card to even pay for e-commerce transactions. You can have multiple bank accounts from which credit cards are paid through auto debits. You are provided with credit card statements by email. Do you know that credit card companies have to mandatorily report to the income-tax department? Do you know that e-commerce transactions leave a trail right up to your home? Remember, the tax department has full details of all your transactions."
 
"For all expenses of a business, you need to have proper documentation. For all assets purchased, you need to preserve proper bills. In your ITR form, under certain circumstances, taxpayer is required to give ‘cost’ of certain assets. How will you give these unless you know what the cost is? How will you know the cost unless you have preserved the documents?" he added.
 
Many people who earn interest income from bank deposits either fail to mention it or pay required tax while filing ITR. "Interest on bank FD is taxable income," Mr Patel said, adding, "Banks deduct tax deducted at source (TDS) on interest on FDs at 10% whereas you could be in the 20% or 30% bracket. This means that you ought to have paid the balance tax on your own. If not, then the taxman will ask you to provide complete details of your entire FDs in bank/s. In order to comply with income-tax requirements, you need to preserve your bank statements, fixed deposit receipts and keep track of renewals of fixed deposits."
 
According to Mr Patel, we also need to preserve all correspondence with the tax department. He said, "We need to carefully preserve all the emails. We need to regularly check the form 26AS, intimations or notices that we may have missed out by going online on www.incometaxindiaefiling.gov.in. Also check the spam folder of your mailbox regularly so that you do not miss any important communication from the tax authorities."
 
"Merely because you pay by cheque or credit card does not mean anything and you need documentary evidence to prove your claims. Remember, even our Army is being asked to give proofs of the Surgical Strike," Mr Patel said in a lighter vein.
 
Mr Patel also answered a number of questions posed by a large and inquisitive audience.
 

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COMMENTS

Kumar Swamy

7 months ago

Since government has all records and IT infrastructure, it should prepare our income tax returns and send the refund/bill to us. IT officers are OUR employees, should do OUR work to ease the burden instead of harassing us!

Ramesh Mehta

7 months ago

Hi,
Please upload video to moneylife youtube channel (if recorded)
Thanks
Ramesh

Akshay Kini

7 months ago

Govt should ask banks, mutual fund houses and brokerages to provide annual statement that reflects fields from a tax point of view. Such as a FD interest statement, a capital gains report etc.
In today's day and age, it is easy for them to compile such data.

REPLY

Ramesh Mehta

In Reply to Akshay Kini 7 months ago

You can get your TDS details at https://www.tdscpc.gov.in/app/tapn/tdstcscredit.xhtml

Banks also provide interest certificates & tax credit statments

Rushikesh dhebar

7 months ago

Great .. very useful article(eye opener)

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Continued losses can erase revenue reserves of public sector banks: CRISIL
A sharp decline in profitability and mounting losses could wipe out revenue reserves of some public sector banks (PSBs) and hamper their near-term ability to service coupon on additional tier 1 (AT1) bonds issued under Basel III capital regulations, says a research note. The Basel III-compliant AT1 bonds are meant to be loss absorbing in times of stress.  
 
In the report, ratings agency CRISIL says, "...some banks are reporting revenue reserves in their audited balance sheets without adjusting for profit and losses (P&L). Instead, these losses are being shown as a negative ‘balance in P&L Account’ on the liability side. As a result, reported revenue reserves do not deplete despite losses. For loss-making banks, the ability to service coupon on AT1 bonds depends only on adequacy of revenue reserves."
 
As many as 13 of the 21 PSBs (taking the State Bank of India and its associates as a consolidated entity, reported losses for fiscal 2016, and almost half of them could do so again this fiscal. As on date, 14 PSBs have Rs22,600 crore of AT1 bonds outstanding. "While Government of India has committed capital support to PSBs to sustain their capital ratios above regulatory minimum, the coupon on AT1 bonds can only be serviced through current year’s profit or from revenue reserves and hence any capital infusion by government alone cannot improve the bank’s ability to service coupon on these bonds," the report says.
 
Krishnan Sitaraman, Senior Director for Financial Sector and Structured Finance Ratings at CRISIL says, “A part from high probability of posting losses this fiscal, negative or low revenue reserves are likely to make six PSBs vulnerable. Of these, four have AT1 bonds outstanding, where continued losses could wipe out their revenue reserves and pose a challenge when it comes to coupon servicing. The other two have not issued any AT1 bonds so far."
 
According to the ratings agency, four other PSBs are also expected to post losses in the near term, but they have adequate revenue reserves, after adjusting for expected losses, to service coupon on AT1 bonds outstanding. "However, their ability to continue to do so over the medium term will depend on a return to profitability. On the other hand, 11 banks are expected to report a profit in the near term or have sizeable revenue reserves despite weaker profitability, which would help them service coupon obligations on AT1 bonds over the medium term," the report says.
 

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COMMENTS

Govinda Warrier

7 months ago

RBI and GOI need to take cognizance of the possible damage such vague observations about the possibility of some banks failing to meet payment obligations will cause to the banking system. The easiest way, traditionally, to kill a bank is to spread a rumour that it may not be able to meet payment obligations on due dates. Crisil has unwittingly done just that without mentioning the name of the bank.

B. Yerram Raju

7 months ago

PSU Banks have all professionals - most have qualified in banking diplomas from IIBF or IBL and several are also CAs. It is not so much professionalism that is lacking as integrity and support to integrity at various tiers in the organisation. If the seniority principle gives place to merit and proven integrity, half the ills of banks are cured. The other half is cured by the government not pushing its targets. Public sector bank executives are still measured by the targets they receive on government schemes. Same number of staff at various levels achieve millions of Jan Dhan and Mudra Accounts in just a couple of years that they missed out for decades!! Why the Finance Department of GoI is not able to see the red line in such target achievement? Both PSBs and the Government of India seem to be interested in scratching each other's back. Second, why the same Government cannot say that a portfolio of certain viable quantum and number of corporate accounts shall be managed by a person no less than a GM for at least three years continuously? Even if such GM were due for promotion in between such 3-year period, monitoring by the same person should be continued. Then accountability increases. Committee approach for sanctioning is okay but not for shifting responsibility and accountability. NPAs can significantly go down in the corporate sector at least in a couple of years.

REPLY

Govinda Warrier

In Reply to B. Yerram Raju 7 months ago

I agree with the contents, especially the opening two sentences. Though we are not raising these issues for the first time, at the risk of repetition, we need to talk out more often. As of now, the only option is to strengthen PSBs. If Privatisation was to help, post-nationalisation, the residual and new generation private sector banks would have subsumed a decent share of banking business by now. Their share remains below thirty percent means that they avoid a large section of clientele PSBs service. I am reminded of the prophetic assertion by All India Rural Credit Survey: "Cooperation has failed, cooperation must succeed"
PSBs, in whatever structural form they survive, need to be retained in good health.

Akshay Kini

7 months ago

Many of these PSU banks have incredibly high CASA ratio, yet are suffering. Shows how badly are run.

REPLY

Govinda Warrier

In Reply to Akshay Kini 7 months ago

Infuse professionalism, give them functional freedom to manage HR and compensate workers with level playing field compared to banks in private sector, when they are asked to do unremunerative business for meeting social objectives, make good their losses by appropriate interventions, just as GOI has made RBI's MPC a body of experts, take care to fill board vacancies and top positions with competent persons and ensure they remain in position for reasonably long tenure...

Shrikant Dattatraya Sahasrabuddhe

7 months ago

Names of banks not published.Why?

Shrikant Dattatraya Sahasrabuddhe

7 months ago

Names of banks not published.Why?

Govinda Warrier

7 months ago

Many are wise after the event. Some pretend to be. The compulsions to be realistic in accounting practices have forced some banks to report losses. Slowly some discipline is in sight. The overall position of public sector is painted grey by vested interests. As of now, there seems to be no escape from infusing professionalism into the working of public sector organizations. There are no takers for the 'ugly' but unavoidable work they are doing.

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