Will the proposed common ITR help in tax compliance?

Going a step further, the Central Board of Direct Taxes (CBDT) released the proposed Draft Common Income Tax Return Form (Common ITR Form) on 1 November 2022 and requested inputs from stakeholders and general public by 15 December 2022. The proposal is designed with an intention to make the return filing process user friendly and align with international best practices. Some of the key points of the draft Common ITR Form, as it is today, are mentioned below to understand what this form is all about. However, depending on the stakeholders/public comments, this may be subject to change.

Common ITR Form

CBDT has come out with a proposal to merge all existing ITR forms except ITR 7 (applicable to trusts, non-profit organizations, etc.). Also, taxpayers can continue to file tax returns using existing ITR 1 and ITR 4 forms (as applicable) or normal ITR forms as per their convenience.

Normal ITR Form is designed to customize the ITR Form as per the facts of the taxpayer along with the schedule applicable to the taxpayer based on certain queries (Wizard Queries) given by the taxpayer. Further, the questions are framed in such a way that the taxpayers have to answer only ‘Yes/No’ and if the answer to any question is ‘No’, the linked follow-up questions will not be displayed to the taxpayer.

The normal ITR form will continue to ask for some essential details such as basic information, schedule for computation of total income (Schedule TI), schedule for computation of tax (Schedule TTI), details of bank accounts and a schedule for payment of tax. (Schedule TXP), which applies to all taxpayers. Other schedules will be visible and have to be filled only if the wizard questions are answered ‘yes’ by the taxpayers.

While merging all ITR forms, the government has also looked to incorporate additional queries for better data reconciliation and increased compliance. Some of the fields added in the proposed Common ITR form are details of the lender of the housing loan and the details requesting information for taxation of income from Virtual Digital Asset (VDA). Special focus has been given to VDA which includes a new schedule wherein taxpayers will be required to provide details of income from VDA and cost of acquisition, if any.

Some of the benefits of Common ITR Form:

As per the existing ITR form, taxpayers are required to select the correct ITR form applicable to them based on the heads of income and earned income. To pacify the issue and avoid confusion among taxpayers, the common ITR form will be available to all taxpayers (with the exception of ITR 7) and this will facilitate ease of compliance.

Once the taxpayer answers the questions from the wizard, the utility will be customized and only the applicable schedules for the questions answered as ‘Yes’ will appear. For example, if the taxpayer has only long-term capital gains (LTCG) from the sale of equity shares, he will see only the applicable areas of Schedule CG relating to LTCG. This simplifies the process of filing returns.

Instructions have been added incorporating instructions regarding applicable schedules to assist in filing of ITR.

It also facilitates increased scope of pre-fills by collating third-party data available with the tax department vis–vis data to be reported in ITR, to ensure that all sources of income are reported Taxpayer and thus reducing the compliance burden on the taxpayers.

As this is a draft common ITR form proposed by CBDT, on receipt of inputs from stakeholders and public, there may be some amendments/changes when the final form is presented for tax filing.

Amarpal S. Chadha is the Tax Partner of EY India. EY India director Shanmuga Prasad contributed to this article.