Big Data can at times spell trouble for taxpayers

Karun, a client called the other day. While filing his spouse’s income-tax return, he panicked when he saw the Annual Information Statement (AIS). It showed that his spouse had made a huge amount of mutual fund investments, when she had not. He calmed down only after our office determined that those purchases had been made by Karun himself. His spouse was the second holder. We asked Karun’s spouse to use the facility provided in the new portal to mark transactions appropriately, so that there are no issues during assessment.

The Income-Tax (I-T) Department’s big initiative to automate its functioning and collate and cross-tally data for checking tax evasion has led to many benefits for taxpayers. Refunds come earlier. But it has also created issues of the sort faced by Karun’s spouse. While her problem will hopefully get sorted because she has access to professional expertise, I wonder how the legions of do-it-yourself taxpayers will deal with such issues.

Honest taxpayers would, in the normal course, have welcomed the department’s initiatives. But implementation issues, coupled with the misaligned views of many ITDepartment officials (who view taxpayers as evaders till proven otherwise) is clouding middle-class taxpayers’ perceptions. A few examples will illustrate these points.

On the issue of implementation, take the new Section 139AA that has made it compulsory for individuals to link Aadhaar with PAN. The intention is laudable. It will weed out the misuse of PAN numbers allotted to non-existent individuals. Residents of some specific states, people aged over 80, non-resident Indians, and non-citizens are exempt from this requirement. However, the department has not clarified how it will segregate the PAN numbers of such exempt taxpayers from resident taxpayers who have deliberately not linked Aadhaar with PAN.

The tax department has experience of publishing lists. Every year it publishes a list of the PAN of taxpayers who have not filed returns despite their TDS/TCS exceeding ₹ 50,000.

In the absence of exemption lists, tax practitioners are resorting to jugaad solutions. Some are asking clients to update the profile section of the income-tax portal, mentioning their state of residence, residential and citizenship status, assuming that somehow this will allow their PAN to remain valid. Since the department has postponed the coercive application of this section to March 31, 2023, it still has time to come out with an explicit solution to this issue.

Let me illustrate my point about the lack of understanding of new realities with the example of a friend who had invested in a start-up a few years ago. My friend, an accomplished professional with decades of experience and excellent net worth, now runs another start-up from which he does not draw any salary. Hence, his taxable income during that period, when he had made the investment, was low. But he had disclosed his considerable net worth in his income-tax return. He was shocked when he received ashow cause notice asking why his tax assessment should not be reopened for investing without having an adequate source of income.

The notice had been issued by an Assistant Commissioner of Income Tax. My friend is awaiting a final decision while preparing to fight out this ridiculous notice.

Then there is the case of the taxpayer’s charter, introduced with much fanfare. However, a petition cannot be filed on the new portal, nor can a petition filed under the charter be tracked on the new portal.

The tax department’s initiatives, while well intentioned, require better implementation. And its officials need to acquaint themselves with the new ground realities.

The writer heads Fee-Only Investment Advisors LLP, a Sebi-registered investment advisor; Twitter: @harshroongta

The tax department’s initiatives would, in the normal course, have been welcomed by honest taxpayers, but implementation issues and the taxman’s misaligned views are causing problems.