The CBDT had introduced the ‘Saral’ form (Form 2D and Form 2E) in order to persuade people, especially the salaried class, pen sioners and small income earners, to file income tax returns. The reason being that many salaried taxpayers, whose income comprised only of one source which was subject to tax deduction at source (TDS), refrained from filing returns due to the complications in doing so. The objective of this form, as the name suggests, was to simplify the complexity of information required to be filed with returns, without the need of any expert advice. The ‘Saral’ form achieved its objective, as the number of people filing tax returns improved dramatically.
Recently, CBDT introduced Form 2F to further simplify the process and also facilitate collation of pertinent information from taxpayers. The new form warranted certain additional disclosures.
The above change now mandates maintenance of a cash flow statement. This has led to major criticism from all quarters. There is a perception that these changes have added complexities (particularly to the cash flow statement requirement).
This is further compounded by a feeling that the government was focusing their attention against tax evasion from a relatively “honest class” of taxpayers, when they ideally needed to focus their attention on non-salaried class, wherein the issue of tax evasion is more rampant.
The government has now clarified that the form is optional this year and will be reworked next year. However, we welcome the move of introducing the new form on the following grounds: It does away with the requirement to file the physical documents of TDS along with the return, Electronic filing of returns is ac knowledged.
Drawing up a cash flow statement as required by the form is not as complex as generally perceived. For tax payers who are “honest”, it would not matter disclosing gross totals under the three headings stated above. The assessee is not required to do anything new than what he is doing currently to collate the data required. ¦ Over a period of time, we believe that net worth certification of individuals could be easily possible. The following data will be needed for the cash flow statement. Disclosure with respect to total outgoing of the assessee for the year in three categories ¦ Expenditure / outgoing which have been claimed under Chapter VIA (sec tion 80) ¦ Outgoing in the form of other invest ments ¦ Other expenditures ¦ Opening and closing Cash / Bank Bal ance However there are certain issues on which clarity / additional efforts is required. We are listing few of them, which come foremost to our mind: ¦ A situation may arise wherein an indi vidual may have joint accounts e.g. a joint account with his spouse etc. In such a case clear demarcation of in comes as well as expenditure pertain ing to particular assessee need to be maintained. ¦ There is also an issue in regard to peo ple with non-financial background to present a systematic cash flow state ment for the year. However, this is a myth as all individuals maintain cash flow statements of all their major in vestments and expenditures. The only question would be for them to main tain a record as required by the tax au thorities. ¦ How will the procedure of the assess ment take place whereby no physical documents are attached with the re turn? ¦ As far as the assessment is concerned, will it be required that the assesses has to be present at the time of assessment, which is practically impossible. Another positive of the new form in regards with the governance machinery is that it would enable the authorities to crack down tax evasion. The tax authorities could judge whether the assessee is honestly paying his tax or not by analyzing following parameters: ¦ Number of dependents to expenditure incurred: it can be easily judged whether the expenditure claimed is in flated or appropriate. ¦ Normal to discretionary expenditure:
{{/usCountry}}Drawing up a cash flow statement as required by the form is not as complex as generally perceived. For tax payers who are “honest”, it would not matter disclosing gross totals under the three headings stated above. The assessee is not required to do anything new than what he is doing currently to collate the data required. ¦ Over a period of time, we believe that net worth certification of individuals could be easily possible. The following data will be needed for the cash flow statement. Disclosure with respect to total outgoing of the assessee for the year in three categories ¦ Expenditure / outgoing which have been claimed under Chapter VIA (sec tion 80) ¦ Outgoing in the form of other invest ments ¦ Other expenditures ¦ Opening and closing Cash / Bank Bal ance However there are certain issues on which clarity / additional efforts is required. We are listing few of them, which come foremost to our mind: ¦ A situation may arise wherein an indi vidual may have joint accounts e.g. a joint account with his spouse etc. In such a case clear demarcation of in comes as well as expenditure pertain ing to particular assessee need to be maintained. ¦ There is also an issue in regard to peo ple with non-financial background to present a systematic cash flow state ment for the year. However, this is a myth as all individuals maintain cash flow statements of all their major in vestments and expenditures. The only question would be for them to main tain a record as required by the tax au thorities. ¦ How will the procedure of the assess ment take place whereby no physical documents are attached with the re turn? ¦ As far as the assessment is concerned, will it be required that the assesses has to be present at the time of assessment, which is practically impossible. Another positive of the new form in regards with the governance machinery is that it would enable the authorities to crack down tax evasion. The tax authorities could judge whether the assessee is honestly paying his tax or not by analyzing following parameters: ¦ Number of dependents to expenditure incurred: it can be easily judged whether the expenditure claimed is in flated or appropriate. ¦ Normal to discretionary expenditure:
{{/usCountry}}The authorities have to assess the ex penditure incurred is on necessities (normal) or any expenditure over and above the normal expenditure has in curred (discretionary), in order to de termine fairness of the taxpayer. ¦ Investments to Expenditure Ratio: The authority can consider this parameter to study the amount invested as against the expenditure incurred. An abnormal proportion of this would throw light on the individual’s mis ap propriation of funds.
(The author is head of research at Haribhakti and Company. The views expressed here are his own.)