By Parizad Sirwalla
Budget 2025 income tax expectations: With the advent of digitization, the Income Tax Department has made significant progress in simplifying tax related processes. It is widely expected that the 2025 Union Budget can focus further in this area with a bid to simplify personal tax compliance and enhance transparency. This also aligns with the Government’s efforts to encourage voluntary tax compliance and reduce administrative burdens.
Some of the areas where the Government may consider digitizing and enhance simplification of tax compliances for individual taxpayers are discussed below.
Elimination of multiple sources of input data
Currently, despite technology adoption, taxpayers appear to spend time on compiling certain data as they have to rely on multiple sources of data generated by the same income tax department for tax return preparation such as Form 26AS for TDS credits, Annual Information Statement (AIS) and Tax Information Statement (TIS) for specific income, advance tax etc.
Similarly, there are filings done by Indian employers with the Reserve Bank of India (RBI) for equity shares allotted under ESOP or similar global scheme. If data from such filings can also be pre-populated in the AIS/ TIS it could further reduce genuine omission errors.
It would be convenient for taxpayers to have a consolidated form basis which the tax return form is prefilled. This would ensure that no data is missed and at the same time, is helpful for validation of input data.
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Effortless and Effective Tax Filing:
The introduction of pre-filled Income Tax Returns (ITRs) has proven to be a significant advancement in streamlining the tax filing process. However, there is a strong need for further enhancement in data extraction with automation, integration of data from various sources, such as banks, employer’s, investment managers, mutual funds etc.
For instance, the AIS Form should comprehensively capture the entire break-up of salary income with details of all allowances and exemption, all capital gain entries – including F&O transactions, transactions in crypto assets etc. etc. Furthermore, tax return forms can possibly directly capture information regarding capital gain transactions from Form AIS based on the categorization of capital gain (i.e., long-term or short-term). Currently this is a manual exercise which consumes time basis the volume of transactions.
This approach will ensure accurate reporting of capital gains, making it easier for taxpayers to report their income and simplifying the overall tax filing process.
Introduce window for filing Tax Residency Certificate (TRC) application online
Indian Residents claiming relief under a Double Tax Avoidance Agreement in a foreign jurisdiction may be required to obtain a TRC from India Tax Authorities. The current process requires an individual to file a TRC application manually with the Tax Officer coupled with multiple follow ups to ensure timely processing. Implementing an online system for TRC application has the potential to significantly reduce time and enhance taxpayers’ experience.
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PAN transfer Redressal System / Process
The Tax Authorities use Permanent Account Number (PAN) to identify and link all financial transactions including tax assessments with a taxpayer. In a situation, where taxpayers relocate from one city to another or in the event of a change in their residential status, the current process for transferring their PAN involves taxpayers to file manual applications with the Tax Officer at both locations, often facing substantial delays in closing such cases. To address this issue, the Tax Department can implement an online portal for PAN transfer requests eliminating manual intervention.
One Time Password Conundrum
Currently, resetting a password for accessing the income tax portal relies solely on an OTP sent to a registered mobile number. However, if the registered mobile number is no longer active, taxpayers are unable to access their account. The existing solution involves writing to the Centralized Processing Center (CPC), which then responds with a new password—a process that is often time-consuming and inconvenient.
To address this issue, the Tax Department should enable the option of sending OTPs to the registered email-id as well with additional verification process by allowing face recognition etc. This would provide a faster and more efficient alternative, ensuring seamless access to the portal and enhancing user convenience.
Tax Remittances and Refunds from / to Foreign Bank Account
Taxpayers residing outside India who do not hold an Indian bank account face significant challenges in making tax payments or receive refunds as these transactions are currently restricted to authorised banks in India. To alleviate this hardship, the tax Department could consider implementing alternative banking channels or mechanisms to enable tax payments from and receive refunds into a foreign bank account.
In conclusion, the digitization of tax compliance offers immense benefits for taxpayers, providing greater convenience, transparency, and efficiency in managing their tax obligations. By simplifying processes, reducing paperwork, and enabling faster communication with Tax Authorities, digitization can significantly ease the burden on taxpayers, especially those in remote areas or with complex tax situations.
(The author is Partner and Head, Global Mobility Services, Tax, KPMG in India)
