Last week, Sucheta Dalal reminded me on Twitter about my cover article for Moneylife
magazine published long back when we had a different ruling party and different finance minister. It was titled “Taxtortion The Nightmare Continues
” – a term coined by Debashis Basu. He nudged me to write on “tax torture” – a term that I mentioned in response to her tweet. On 1 May 2014, I wrote another article titled “Tax Torture
Since I have already highlighted the tax torture that taxpayers have been subjected to until 2014, I thought of naming this article “Tax Torture – Season 2”. It covers the torture that taxpayers and tax deductors face today.
Before proceeding, a disclaimer. The objective of this article is NOT to blame any individual or institution. The objective is purely to highlight the mental trauma, stress and unbearable torture that taxpayers (and through them – their tax advisers) have to face day-in-and-day-out because of the tax laws and tax rules that have been thrust on us.
Generally, I am not very vocal on such matters and prefer to pass on my grievances privately, to some good friends that I have in the tax department – not my personal issues but generic issues that impact taxpayers at large. However, now, the situation has got to such a level that I am forced to write this article to vent my frustration and anger and feeling of despair and hopelessness.
Hopefully, someone in the corridors of power will read this article and understand that what bureaucrats tell them is not necessarily the whole truth. The truth has two sides and a person who sits in the chair of a legislator needs to see both sides before making laws and rules. If decisions are based on the truth as told by one side, there will be no improvement.
Recently, the revenue secretary mentioned in a public meeting that "31st December 2021, remains the official deadline for filing of income tax returns and the site is working perfectly as returns filed so far are more than those filed in the previous year.”
The pain that this statement has caused to taxpayers and tax professionals is immeasurable. Such a statement can be made only based on misinformation or incomplete information.
Despite detailed evidence posted by thousands of chartered accountants (CAs) on social media about the unmitigated disaster that we have, in the form of the newly launched income-tax e-filing portal, if such a high-ranking bureaucrat could make such a statement, it clearly points to a greater malaise that has gripped our bureaucracy.
Let me begin with the basics, in order to justify the title of this article.
Over the past few years, the government has chosen to do away with physical interaction between the taxpayer and the tax officers as far as possible. This is a great move and most people, including me, welcomed this.
There can be no two views in the matter that corruption has reduced drastically because of this move. A large number of taxpayers have received tax refunds relatively faster than the time it took in the pre-2014 days.
However, the downside of this move is that a lot of work has come to a standstill. To name a few examples – appeals to the commissioner of income tax (CIT) appellate (CIT(A) stage have virtually come to a complete halt. Appeals filed years ago are still not disposed. Thousands of notices are being issued at regular intervals by the ‘system’ asking for the same information again and again. Even if someone provides his response by selecting the ‘final’ tab and not the ‘partial’ (response) tab, the appeal is not disposed off. Another notice will be received after a few months.
In the same way, most of the applications for rectification of mistakes are lying unattended. The taxpayer suffers due to the ongoing lack of clarity on who has jurisdiction for rectifications – whether it is the central processing centre (CPC) or the jurisdictional officer. Because of the COVID-19-induced lock-downs, the situation has deteriorated even further.
On the one hand, demands raised in the past, because of mistakes in the orders are not being rectified and on the other hand, they are being adjusted automatically by the ‘system’ against refunds due for recent years. Similarly, even where appeals have been decided in favour of the taxpayers, the appellate orders do not have effect, and demands are being adjusted against recent refunds.
No amount of complaints to the CPC has any effect. Helplines of the CPC do not offer any real help. Perhaps the persons manning the helplines are clueless and are bombarded with thousands of such calls regularly.
The Nightmare of Faceless Regime
The faceless regime, which is now mandatory for almost every process in I-T administration, has become a bane instead of the boon it was proclaimed to be. So-called ‘checks and balances’ that were the highlights of the faceless assessments scheme are only on paper. There are many cases highlighted on social media by CAs about how assessment orders passed under the faceless assessment scheme have atrocious additions or disallowances.
Not granting adequate time, not granting proper opportunity to present one’s views, sending notices to wrong email IDs (in case of reopened assessments, the notices are being sent to the email ID mentioned in the original returns filed years back instead of sending them to the email ID mentioned in the latest return) are only some instances of how the faceless assessment scheme has become a nightmare instead of a dream come true.
It is possible that there is a larger conspiracy by a segment of tax officers’ to malign the faceless assessment scheme which could be leading to deliberate sabotage. But who will look into the matter? Who will make life easier for taxpayers and tax professionals?
Let me now go to the disastrous filing season for tax returns that is in progress at present. For the year ended 31 March 2021, the filing of tax returns, tax audit reports, transfer pricing reports, and charitable trust audit reports are all in progress.
Readers will note that as of 31 December 2021, almost nine months have passed since the FY20-21 ended. Several months were lost because of the dreadful virus. But more months, that too precious months, have been lost for one reason alone – the launch of the new income-tax portal – www.incometax.gov.in
which replaced the earlier portal – www.incometaxindiaefiling.gov.in
The Atrocious New Portal
The earlier portal, which was in place for several years, was working fine, even though there were some bugs in the ITR forms and utilities. These bugs were fixed quickly and filing could be done smoothly most of the time.
Since 7 June 2021, when the new portal was launched, filing anything on the portal is akin to running a marathon obstacle race, while a hurricane is raging all around you. Initially, finance minister Nirmala Sitharaman did not take any notice, but later she hauled up the software company that is in charge of the portal.
The blame was laid at the doorstep of the software company. The tax department had done everything right. It was the software company that had failed the government and the nation. The relevant question which anyone with common sense would ask is, “did the income-tax department not test the portal in a hundred ways before allowing it to be launched?” has never been discussed even once.
The new portal is, first of all, not fully operational. All the features are not yet in place. For example, details of outstanding demands of past years are not yet available on the portal. Whatever is available does not work correctly.
The tragedy is not that we have a terrible new portal. The real tragedy is that nobody has been made accountable and responsible for this failure. Instead, a statement is made in public that filing is going on smoothly. I must state here that the income-tax department’s CPC has probable the finest state-of-the-art facility in Bengaluru and the team there is doing a great job— especially since 7 June 2021 when they have been swamped with complaints. I have had personal experience of their commitment to resolve issues with the portal as and when they are told about it.
However, we cannot have a situation of fixing bugs on a piecemeal basis. This new portal must be scrapped immediately and the earlier version restored.
Unfortunately, and unbelievably so, I am told that is not possible.
This means that the tax department did not have any plan B in place when the new portal was launched. Nobody thought that the new portal may not work or that there could be a need to restore the old portal.
And so, the old portal is permanently shut down, and the new portal still does not work correctly. Where does that leave the taxpayers and, more importantly, tax professionals?
Initially, logging onto the portal was a problem. Now, filing anything is a problem. A return filed and duly verified on 31 December 2021 is currently appearing as ‘unverified’.
Even today, it is not possible to download ITR or the acknowledgement or the Form 10-IE which have already been filed a week ago. Sometimes it works. Sometimes it does not work. Several forms cannot be filed without “trying and trying till one succeeds.”
Does the finance minister or the prime minister, or the revenue secretary have any idea how much time is taken to file one single return these days?
Unfortunately, CAs have been converted into data-entry operators and it requires technological ‘jugaad’ to file anything on the portal. Thousands of CAs cry out for help to one another to figure out what to do when faced with a particular problem on the portal.
‘Practical’ solutions are then discovered and forms are finally filed. They are filed without 100% confidence that everything is right in them.
And then the problems of mismatch arise.
The CPC sends out demand notices and the whole nightmare starts all over again. This is creating unnecessary duplication of effort and resulting in wastage of precious time, which can be used for far better things – notably doing one’s business or work instead of complying with tax laws.
Another example of how the useless portal impacts taxpayers is with regard to charitable trusts.
All such trusts claiming exemption from tax, have to file a form 10B by 15 January 2022. If this is not done, they lose their exemption.
I have personally signed a form 10B in August. On 9 November 2021, I uploaded that audit report on the portal. After that, when the non-government organisation (NGO) tried to ‘accept’ that report and make it officially filed on the portal, the wonderful software decided to change the PAN of the NGO and substituted it with the PAN of the authorised signatory of the NGO!
No amount of jugaad has been able to solve this issue. Several times, the matter has been flagged to the CPC and the software company. Everyone is aware of it, but there is no solution. If this NGO loses its exemption, who is responsible?
The Maddeningly Complicated Rules and Forms
Connected to the problem of the tax portal is the real problem of tax returns and other forms being so complicated. My personal view is that it is impossible for a common man to fill his own tax return correctly.
Notwithstanding tall claims by various tax return filing websites, it is my firm belief that filing tax returns is not so easy that you can leave it to a software or a website to take care of it, just by feeding in a few numbers.
You need to know and understand the complicated law first. All of us have hard the term – ‘garbage in garbage out’. This is precisely what happens when people trust websites for their tax return filing. They will only provide information that the site asks for and then assume that the computation is done correctly. Anyone with even a basic knowledge of our Income-tax Act will vouch for the fact that life is not at all this simple.
Why are the forms so complicated? The answer lies in the law. The law itself has been made over-complicated with each Union Budget and now, more so, with every amendment to the Act.
The main reason for such complications is that the government is trying to make the law watertight so that the tax evaders are caught.
This is a good objective and a welcome one. But the answer to the problem does not lie in amending the law repeatedly. The solution lies in watertight implementation of the law withour corruption. The law should be simple enough for the common person to comply with easily and for tax officers to be able to detect the evaders. In our case, it is exactly the opposite.
Businessman are getting suffocated by the dozens of returns, sections, penalties, and interest charged for non-compliance. It is high time bureaucrats and ministers understand that honest taxpayers do not want to evade taxes; they want to comply with the law. But the laws are so many and so complicated that it requires a mammoth amount of time and energy just be on the right side of the law.
There are hundreds of genuine reasons for not paying some tax on time or failing to file some return in time (today, most of these reasons are directly attributable to the failed tax portal). And, yet, penalties and interest and “late filing fees” are being merrily recovered from taxpayers by the “system”.
Another reason why forms are so complicated is the government's increasing reliance on data analytics. In its zeal to collect more data which can be analysed with artificial intelligence (AI) in order to direct scrutiny of suspected evaders, the government has gone overboard.
There are dozens of specified financial transactions that are being reported to the government by various agencies. This data then gets captured in every taxpayer's annual information statement (AIS) as well as taxpayers’ information summary (TIS), which are the two latest weapons in the armoury of the I-T department. This data is proposed to be matched with the data that is reported in the income tax return -ITRs.
Therefore, the return form has to be long enough to capture all this information from the taxpayer. So, the ITR form keeps getting longer and longer. What is worse, it undergoes multiple changes every year. So, there is no certainty, there is no continuity and, therefore there is so much chaos.
Every year, the software company that runs the back end of the CPC has to sit down and draw up fresh utilities for each ITR form and other forms. This, in turn, throws up new bugs every year and disturbs the smooth filing of tax returns. It also creates stress among taxpayers and tax professionals.
Then the war of words begins on social media. Is it at all surprising that we have so much unrest amongst tax professionals today? Is it really so difficult for the finance ministry to understand the pain that taxpayers and tax professionals are experiencing?
Complications in the law and the resultant hardship caused to taxpayers can be further illustrated with a simple example. There is one Section called 206C and there is another section called 194Q.
The first is an old Section that requires a seller of certain goods to collect tax at source at the time of sale. So, along with the sale consideration, the seller also has to collect TCS (tax collected at source) and pay this to the government.
Recently, the latter section – 194Q -- was enacted to force purchasers of certain goods to deduct tax at source from the amount paid for purchasing. So, on the one hand, the seller collects TCS from a sale and on the other hand, the purchaser is supposed to deduct TDS (tax deducted at source) from the purchase amount. Both on the same transaction.
To avoid double tax, there is a provision where the TDS section has been put to use and tax deducted, the other section should not be applied to collect tax. Undoubtedly, the bureaucrats who drafted these provisions must be very happy that they have solved the problem of double taxation.
But do they really know the ground reality? This kind of grey area leads to disputes and problems. Often, both sides collect or deduct tax from the same amount. This only leads to a waste of time, effort and money. After doing all this, if there is even one day of delay in payment of tax to the government, or in filing the TDS or TCS return, there is penal interest to be paid. If this is not tax torture, then what is?
It is time for taxpayers and tax professionals to put their collective heads together and object to this tax torture. But who will bell the cat? Till this is decided, Tax Torture Season 2 will continue to haunt honest people. I am eagerly waiting to find out which will end first – tax torture or the virus.
(CA Ameet Patel is a partner at Manohar Chowdhry & Associates. He is past president of the Bombay Chartered Accountants’ Society.)