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January 6, 2021

Capital gains, dividends from stock market transactions to be now pre-filled in ITR’s

Capital gains, dividends from stock market transactions to be now pre-filled in ITR’s

The economic impact of the 2020 coronavirus pandemic in India has been largely disruptive. The lockdown though necessary has led to a disastrous impact on the economy. With an ever-increasing corona virus cases, lockdown was considered as an only solution to flatten the curve. However, the measures which were implemented to avoid a human disaster, have in turn led to the birth of several issues such as unemployment, recession, hindrance to economic growth, financial instability and so on.

The Government of India announced a variety of measures to tackle the situation, from food security and extra funds for healthcare and for the states, to sector related incentives and tax deadline extensions. With the ongoing COVID -19 pandemic a lot of income tax due dates were extended. As a result, instead of July 31, 2020, the due date of filing return was first extended up to November 30, 2020, then to December 31, 2020 and finally to January 10, 2021.

Advent of Pre-filled Income Tax Returns (ITR’s)

The 2019 Union Budget had several announcements that aimed to simplify tax laws and administration. The Finance Minister pointed out that India’s Ease of Doing Business ranking under the category “Paying Taxes” improved significantly in the last two years. And on that note, she highlighted the importance of leveraging technology to make compliance easier for the taxpaying public. With this purpose in the agenda, measures like the interchangeability of PAN and Aadhaar, Faceless e-assessment and pre-filing of income tax returns were declared.

Tax department to now prefill capital gains, dividends from stock market transactions

  • The revenue department is now looking to seek information from stock exchanges and KYC Registration Agencies (KRAs) launched by SEBI, on share and stock related transactions.
  • The efforts are to automatically provide the taxpayer information on their capital gains from sale of stocks and mutual funds, dividends, etc so that when an individual is filing income tax returns, he does not have to manually fetch the data from different sources and fill in their returns.
  • The same would help the honest taxpayers in preparing their returns so that even by mistake s/he does not forget those transactions in the tax returns.
  • Assessee’s, who earlier used to think how would the tax department know about the transactions, they are now to be aware that the tax authorities have details of those taxable transactions, and it is better to disclose them in the returns to avoid any complications at a later stage.
  • The KRAs, maintain KYC records of the investors on behalf of capital market intermediaries registered with SEBI.
  • The revenue department has already started sharing such information among its wings – direct tax, indirect tax and customs departments.

MoU signed by Income Tax Department

  • The income tax department last year signed MoUs with the market regulator SEBI and MSME Ministry for information sharing.
  • The move was aimed at enhancing the tax department’s scrutiny of stock market transactions that are aimed at evading taxes.
  • The MoU will ensure that both CBDT and SEBI have seamless linkage for data exchange.
  • In addition to regular exchange of data, CBDT and SEBI will also exchange with each other, on request and suo moto basis, any information available in their respective databases, for the purpose of carrying out scrutiny, inspection, investigation and prosecution.
  • The tax department already receives information on large transactions from banks, mutual funds, etc under Section 285BA of income tax.
  • The Revenue Secretary said that these efforts have helped the government increase the tax collection efficiency.

The Revenue Secretary did not indicate likely shortfall in tax revenue in the current financial year; he said that numbers from the first three quarters are encouraging.Citing the example of direct taxes, he said that the till December the direct tax collection was showing a gap of only 9.9% (compared to previous financial year).

Considering the facts that a good part of the three quarter was badly impacted by the lockdown, and the subsequent tax relaxations given under Atmanirbhar Bharat package like cutting the TDS rates by 25%, a decline of only 9.9% actually showed that there was an improvement in collection efficiency in the direct tax also.

He also pointed to the fact that customs duty collections were also strong. Revenue collected more than 16,000 crores in December 2020, a growth of 94% over Rs 8,300 crores in December 2019.

Apart from reducing the time required to file a return, automation will also ensure accuracy of data.Globally, pre-filled tax returns are gaining popularity and acceptance. CBDT’s initiative to implement Online Tax Accounting and TDS System can be considered as an important milestone paving the way for auto-population of tax returns.

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