Humble suggestions to Mr. Jaitley on tackling black money while keeping IT returns simple

Dear Mr Arun Jaitley,

Yesterday I wrote an open letter to you, severely criticizing the new changes brought in which make filing tax returns quite an onerous task. I found this sentiment reflected in many people, online and offline. My clients have been messaging me asking if this is true, and most of them feel these measures are too harsh. That was when I tried to wonder why you have done this, and what could have been better ways to achieve this. Hence, today I humbly submit some ideas, which could achieve your purpose, without troubling the taxpayers.

I understand that tapping into black money or untaxed income in India is the major driver behind making people submit all their bank details and foreign travel details. It is a noble idea, but implementation can be changed. First let us talk about the mandatory furnishing of bank details.

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As things stand, your new rules mandate everyone, including those smallest taxpayers filing ITR 1 (Sahaj) to declare all bank details (Ironically the ITR was named “Sahaj” for being easy to comply with). The people covered are the salaried middle class who only have some bank interest as additional income, nothing else. Your target is probably those people who open bank accounts and do not declare the income in those accounts. For this, Let me tell you a practical incident. A businessman I know, tried this very stunt, opened a bank account, deposited black money, and hid the account from his business accounts and the Income Tax. Did it work? No he was caught. How? Banks submit what is called an Annual Information Report (AIR) to IT department for various high value transactions. This business man got caught in this.

There lies the solution. Most banks already have PAN details of their customers. They already report certain transactions to the IT Department. You just need to do two things:

a. Make it mandatory for PAN to be submitted for all accounts. To achieve this tell banks to deduct TDS on Interest at 30% for all accounts with no PAN details. Watch how all these hidden account holders rush to give their PAN details.

b. Once above is done, tinker with the AIR details needed to get the information needed. e.g. You could ask banks to furnish a simple report asking total interest paid to a particular PAN. Match this what is declared in the IT returns. You have your unaccounted income guy there. From there you can proceed to check those hidden accounts.

This mechanism isn’t too difficult since, similar systems (AIR) are already in place. Instead of expecting the detailed data from lakhs of tax payers, you can get consolidated data straight from the banks. Also, as of now, you have made this applicable to everyone including the smallest tax payers too. My advice: Go for the big fish. It will not prove cost benefit effective to go after the small taxpayers.

Where we should be making it easier for taxpayers to file returns, we are making it more difficult. I have a raw idea on this front too. Via Budget 2014, you forced employers to deduct proper tax on salaries in order for them to claim the salary expenses. Via Budget 2015, you have told employers to collect all documentary evidence relating to other income, expenses, compile income under all heads, and then deduct TDS. This is essentially outsourcing a major part of the IT department’s job.

Now since employer is being made do all this, and then file Form 16, why not make a provision which deems Form 16 itself as a Tax Return? At least in case of very small tax payers? This idea of course needs deeper deliberation, but it would simplify a lot of work.

Secondly, you have asked Foreign Travel expense details. The assumption here too is Indians like to spend black money on foreign tours. This might be true for some of us, but it is no reason to hang all of us. Firstly, Financial 2014-15 is over. Any trips made are done. Now you are asking for data of this past year. Did people know you would be asking them? Have they kept travel expense records? Probably not. Then wouldn’t it have been better to make it prospective? You have been vocal against retrospective taxation. While this isn’t taxation as such, it does violate the retrospective principle.

Also, wouldn’t it have been easier to just ask for the passport numbers and then verify the foreign travels from the Government of India’s database. From the duration and the location, one should get a fair idea if any person has gone on a trip beyond his declared reach. Instead, asking all expense details puts the burden on the taxpayer to prove his innocence.

Till now details of only tax deductible expenses were asked. Asking personal expense details is a bit too much. It is also a violation of privacy and reeks of communist strangleholds on freedom. Again, this has been extended to most taxpayers. Do you really expect regular salaried employees to have so much black money?

I am afraid, we are missing the forest for the trees here. Undoubtedly, India’s largest home-grown treasure of black money is the Real Estate sector. Yet there are no strong moves to track the black money here. Instead we are asking salaried employees to prove their innocence. This is certainly an example of misplaced priorities. I urge you to adopt the above measures, if you have to ask for these details, and reduce the burden on taxpayers.

Prime Minister Narendra Modi has always talked about creating an atmosphere of trust and removing unnecessary government interference in various walks of life. The latest steps, even though taken with earnest intentions, don’t go well with that objective. Please trust the common man, and keep it simple.

– A Taxpayer and a Chartered Accountant


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