All about the new tax return form

'I am the parliamentary draftsman,
I make the laws,
And for all the litigations,
I am the cause.'

On June 1, the income tax department notified a new four-page income tax return form (Form 2F) that seeks to replace the one-page Saral. Although Revenue Secretary K M Chandrasekhar stressed that this would make the return filing process far easier, simple arithmetic says otherwise.

A four-page form, by definition, is more complicated that a one-page one. This article discusses the details.

To whom is it applicable?

The new income tax form has to be used by individuals and HUFs (Hindu Undivided Families):

1. Who do not earn Business income;
2. Who do not earn Capital gains;
3. Who do not earn Agriculture income;
4. Who do not own more than one house; and
5. Who are not filing for relief under section 89 in respect of arrears or advance of salary.

Which this basically means that it is applicable to the salaried class and those earning interest income, that is, pensioners!

This is by far the most remarkable aspect of the entire exercise.

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Making it applicable to one of the most honest class of taxpayers where most of the income is anyway already deducted at source and not for those where there is potential for manipulation is bewildering, to say the least.

From when is it applicable

The good news is that if you file your tax return before July 31 this year (which is anyway the last date for filing tax returns), the new form need not be used. So take care not to be late while filing last year's tax return.

Why four pages

Obviously, the tax department wants to collect far more information than Saral lent itself to. There are, in all, nine schedules that need to be filled over and above the main income tax computation. (Click here to download the new I-T form)

The following are the details:

Schedule 1: Details of Income from House Property, if any.

Schedule 2: Details of Interest Income from all sources.

Schedule 3: Details of exempt income (for instance, PPF interest, dividends, long-term capital gains, etc.)

Schedule 4: Details of tax deductions (Section 80C through Section 80U) that you have claimed.

Schedule 6: Details of Advance tax paid.

Schedule 7: Details of tax deducted at source on Salary.

Schedule 8: Details of tax deducted at source on income other than Salary.

Schedule 9: Details of Self Assessment Tax.

The form specifies that taxpayers should not enclose any statement showing the computation of income, TDS Certificate, proof of payment of Advance Tax/Self-Assessment Tax or any other document. If enclosed, the same shall be returned by the official receiving the tax return.

However, this comes with a warning.

All the above mentioned documents and other evidence in support of the computation of the tax payable and tax paid should be retained by the taxpayer for verification by the income tax authorities, if necessary and called for. This is very important and it would be advisable to file all your supporting papers year-wise.

The dreaded Schedule 5

Readers must have noticed that in the above listing of Schedules, Schedule 5 has not been mentioned. The same has been reserved for special discussion.

Schedule 5 specifies that the taxpayer has to make a detailed cash flow statement encompassing his income and expenditure from all sources for the year. This is what a typical cash flow statement would look like:

This then is by far the most distressing provision of the new Form 2F. Having to make a cash flow statement has converted the income tax return to an expenditure return. Instead of asking for a cash flow statement, which is nothing but of hassle value to the average taxpayer, the authorities could as well have asked for a copy of the bank statement to be attached with the return.

And several questions remain unanswered:

• Most people have more than one bank account. Would separate cash flow statements be required for each bank account or would one consolidated statement suffice?
• Joint bank accounts will create further complications. Typically, a husband and wife have a joint account and expenses, especially personal ones, are defrayed commonly without bifurcating.
• Though Central Board of Direct Taxes member Arvind Modi has clarified that for household expenses, details are not required and only a mention of a lump sum would suffice, doesn't he see that in order to arrive at an accurate estimation of a lump sum, details would anyway have to be maintained.
• As long as the income is taxed, how does it matter how, where and when we spend our money? Apart from the privacy issues, replicating the accounts department of a corporate is no child's play, especially for pensioners and senior citizens.

Electronic Submission

Taxpayers are being encouraged to follow a two-step procedure to file this return.

First, the return and schedules thereto have to be transmitted electronically (without digital signature) to the web site http://www.incometaxindiaefiling.gov.in and thereafter a paper return has to be filed. The date of such transmission and acknowledgement number given electronically by the income tax department for such transmission then has to be filled in the paper return. However, in case the return is not transmitted electronically, the paper return may be filed and the same will be treated as a valid return.

And they call this simple!

To conclude

Basically, the new form will leave chartered accountants and other income tax return preparers licking their lips as the charges for preparing the return will increase if not outright double. That is certain.

The entire idea behind this exercise seems to be ensure greater tax compliance. And on whom does this burden fall? As usual, the salaried middle class!

Click here to download the new I-T form!

Sandeep Shanbhag is Director, A N Shanbhag NR Group, a Mumbai-based tax and investment advisory firm. He may be contacted at sandeep.shanbhag@gmail.com