New Form 26AS: Look Before You Leap

Tax laws have kept evolving and changes are a regular feature. Changes have been brought in to make tax laws shorter, simpler and easy to comply, as well as to plug the loopholes used by wily tax evaders. Changes made to the format of Form 26AS this year is a case in point: to make it more transparent, achieve better compliance and avoid nasty surprises

Laws keep evolving. Necessary amendments to legislations are made from time to time, depending upon the need of the hour. In the case of the Indian Income Tax Act, the pace of change has been quite rapid. Changes to the income tax provisions have been introduced in every annual Union Budget. New provisions get added or old ones deleted. Tax rates and income tax slabs are changed. In the past until the eighties, the maximum rate of income tax was as high as 97.5% and together with this, there were added tax liabilities from Estate Duty and Wealth Tax. There was also the burden of Gift-tax on the transfer of assets or money without any consideration. The end-result was that for high net-worth taxpayers, tax liability could be even more than the actual annual earnings after tax. Today, the tax rates are very reasonable and competitive and there are no draconian estate duties, wealth tax or gift tax.

Changes have reasons

Changes in the Income Tax Act are introduced :

• To bring about more transparency.
• To bring about more convenience to taxpayers.
• To plug the loopholes used by dishonest taxpayers for tax evasion.
• To bring about simplicity and thus stop undue litigation.
• To widen the tax base, as our existing tax base is still very narrow.
• To increase our revenue generation and its collection.

The objectives sometimes get influenced by yardsticks followed by the elected government of the day. In addition to the amendments of legal provisions, the desired effect is also brought about by notifications and circulars issued by the Central Board of Direct Taxes (CBDT), which is the apex body in the Income Tax Department.

The Budget this year was presented on 1st February and since then many changes have been brought about by the administrative measures of the CBDT through circulars. The Finance Minister has also brought in some changes to the existing provisions in the Act and to the Money Bill as initially announced. Most of these changes brought about by circulars or by law are designed to help the taxpayer in view of the prevailing corona crisis and the consequent lockdowns in the country.

‘Changes in the Income Tax Act are introduced: (1) To bring about more transparency. (2) To bring about more convenience to taxpayers. (3) To plug the loopholes used by dishonest taxpayers for tax evasion. (4) To bring about simplicity and thus stop undue litigation. (5) To widen the tax base, as our existing tax base is still very narrow. (6) To increase our revenue generation and its collection’

New dates for filing

The last date for filing income tax returns for AY 2020-21 (For FY ending 31st March 2020) has now been extended to 30th November 2020 for all categories of assessees. The last date for filing belated returns for AY 2019-20 (for March ending 2019) and filing revised returns for the same AY was extended to 31st July 2020. Cases, where the audit was to be done also got reprieve as the audit limitation date of 30th September 2020 has been extended to 31st October, 2020. Budget 2020 had proposed some legislations which were going to be effective with effect from 1st June 2020 and now this will be effective from 1st November 2020. The major provisions which will benefit from these extensions will be the proposed new laws relating to public charitable trusts under the heads of sections 12AA, 12AB, 10 (23C), 80G and 35.

Changes in Form 26AS

One major change brought about by the executive order is in the format of Form 26AS. All taxpayers know about this form as the same is normally perused by taxpayers while filing income tax returns and TDS against the receipts earned. This form is accessible to taxpayers, with the use of their PAN. Form 26AS has been changed with effect from 1st June 2020 to include all financial transactions of a taxpayer regarding which the department statutorily receives statements under Section 286 BA of the Income Tax Act from various listed agencies like banks, mutual funds, stock exchanges, RBI, Register for registering properties, post-offices etc.

The department used to be in possession of details of these financial transactions by the assessees and the same were considered for selecting the cases for scrutiny or for other departmental proceedings after matching the information with the disclosures made in the returns of income filed. This process used to be painful for taxpayers, and the same used to lead to litigation as the income tax department used to reopen the assessments of six years in cases where taxpayers failed to disclose all transactions information about which the department was already in possession of.

‘The last date for filing income tax returns for AY 2020-21 (For FY ending 31st March 2020) has now been extended to 30th November 2020 for all categories of assessees. The last date for filing belated returns for AY 2019-20 (for March ending 2019) and filing revised returns for the same AY was extended to 31st July 2020’

Out in the open

The department now has decided to bring all this hidden information before the taxpayers in the new Form 26AS. So now while taxpayers file their returns of income, they can see the details of transactions and avoid making inadvertent mistakes. Dishonest taxpayers will also know what the department already knows, and will thus file correct returns. The tax department wants that correct tax to be paid, and does not believe that taxpayers should be allowed to first commit mistakes and then get targeted under various proceedings.

All inclusive

The new format of the Form 26AS will help taxpayers and also establish that the tax department believes in transparency and not in undue harassment. With the change brought about in Form 26AS, financial transactions like purchase and sale of goods and properties, cash deposits and cash withdrawals from saving accounts, dealings in the share market, investing in mutual funds, credit cards transactions etc, will now be visible to the taxpayers on a quarterly basis. The new Form 26AS will also includes various other information like status of tax proceedings, demand proceedings by sister revenue departments like Benami Property, Fugitive Act, black money laws, etc.

‘While taxpayers file their returns of income, they can see the details of transactions and avoid making inadvertent mistakes. Dishonest taxpayers will also know what the department already knows and will thus file correct returns’

Transactions, past and present

The department initiated another beneficial process for taxpayers in July 2020, in particular, high-risk assesses. It began to send information through email about financial transactions in the past so that they could revise their earlier returns, as the last date for filing revised returns stands extended to November 2020 due to Covid-19.

The tax department has also directed that in the new income tax returns for AY 2020-21 (for the year ending 31st March 2020) additional information regarding cash deposits exceeding Rs.1 crore, electricity expenditure of more than Rs.1 lakh in a year, foreign travel expense of more than Rs.2 lakhs on self or on some other person, etc., have to be provided. This decision was taken so as to examine tax leakages.

The Income Tax Act is a cumbersome and lengthy legislation. Each government tries to make it simple and brief but unfortunately, it goes on adding more provisions. One compelling reason for many changes is to plug the loopholes, which keep surfacing, thanks to our ever intelligent dishonest taxpayers who keep trying new ways to evade tax.

To cite an example, recently, the Income Tax Appellate Tribunal (ITAT) Mumbai, passed an order in the case of an elderly lady in her eighties. The ITAT upheld the case of the tax department that said that a sum of Rs.196 crores deposited in a Swiss bank had gone untaxed. The lady in question was admittedly the sole beneficiary of that money which was deposited by a discretionary Trust which was registered in the Cayman Islands (a tax haven). The ITAT pointed out that the deposited amount was roughly more than 11,500 times of her disclosed income. The lady’s leading advocates raised various legal issues but the amount in question was found taxable based on the maze of facts and the existing legal provisions. The point to be noted is that the urge to evade tax does not die even when one is quite old (and presumably close to death), and cannot use it after death!

Evasion causes complexity

Changes in the law made for the benefit of honest taxpayers are always welcome. But it is really very sad that most of the changes and the creation of sister legislations are made to plug tax evasion indulged by unscrupulous assessees. Because tax evaders are ever mushrooming, tax laws are getting bulkier and more complicated.