THE DUE DATES PREDICAMENT

Executive Summary

The Income Tax Filing in India has various due dates for different types of assesses and has not been changed in a while. Despite the fact that only less than 5 % of the country’s population file Returns, still there are always a lot of problems on the Income tax website especially in the month of July and the website barely works sometimes for a better part of the day making return filing extremely difficult. However, website not working is not the only reason to this perennial problem. If one were to closely analyse the due dates in India, a lot of other interesting facts come out[A1]?.

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Last year, on 28th July 2022, i:e 3 days before the due date for filing Income tax returns there was a report in the leading newspaper of the country? that only 68% of expected number of returns had been filed and a staggering 32% i:e roughly 2.25-2.50 crore returns were pending for the last 3 days. Given that the Income tax website had been changed completely last year right in the middle of the season and AIS/TIS were made available on the new portal just a few days before the due date in the month of July 2022, a certain delay was inevitable and factored in for. Also, it took some time for people to figure out how to login and use the new portal despite the Income Tax Department’s desperate attempt to roll out and circulate guidance videos on the new portal about how to login, how to navigate around and how to e-pay tax etc.

?But having said that, 32% of the country’s filing pending for the last 3 days was not only staggering but also mindboggling. Does it mean that 32 % of Income Tax filing population of India is laggard and just happens to file late? The answer is obviously a big no.

?This really led me to thinking whether July 31st needs to be the due date for filing returns and whether India should actually move towards calendar year instead of April-March Financial year. Interestingly, the Prime Minister had commented on this around 6 years back and a debate around this was sparked back then, albeit for a very brief amount of time. Surprisingly this year as on 1st August, the data on the Income tax Portal said 6.5 crore Returns had been Filed till 31st July 2023 for A.Y 2023-24 whereas the total number of Pan’s Registered on the Income tax portal is over 11 crore. What is even more surprising is that this happens year after year after year and no one seems to acknowledge the problem, let alone solve the problem.

1.???? ?What actually happens is that the CBDT and Finance Ministry think that the Income Tax Forms, at least ITR-1, 2,3, and 4 were made available by middle of May 2023 but they fail to realise that the due date of filing TDS returns for Q4 of Previous year ending 31st March is as late as 31st May. It is a summer holiday season in India in May and with all the schools and colleges being shut, most people are on a vacation and most of the TDS returns are only filed in the last week of May if not in the last 2-3 days of May. It is also a well-known fact that even banks Compile all the data and file the TDS returns for TDS deducted on interest on deposits of individuals only on the last 2 days of May. There is a RBI report that suggests that as on 31st March 2022, there was about 140 lakh crore of deposits in India. This figure would only have grown as on 31st March 2023 given there have been several rate hikes by the Reserve Bank of India in the second half of 2022 which lead to a corresponding hike in Fixed Deposit Interest rates too by various banks. So one can only imagine how many Income Tax website registered individuals would be getting their corresponding 26AS updated by no sooner than 6-7th June before which they cant file their Income tax Returns despite the forms being ready to file earlier. This leads to a vast majority of taxpayers effectively left with 45 days to file their Income tax return till 31st July, if we remove the 7-8 Sundays i:e weekends ?following the 26AS and AIS TIS updation. It is also a well known fact that our Income Tax Portal is not well equipped to sustain a load of roughly 6.5 crore returns filed in 45 days. This year for most part of 12th-15th June, AIS was being updated and the website was not working. Even on 29th and 30th June the website was not working, possibly due to the Pan-Aadhar Linking due date. Also any maintainance work carried out on the Income tax website was not communicated to taxpayers which they would have kept in mind while filing their Returns. This year, also in the month of July, the due date to file TDS Returns in form 26Q for Q1 of F.Y 2023-24 was shifted to 30th September instead of 31st July to reduce the load of the Income tax website as the old way of paying TDS on NSDL was done away with and all the direct taxes including TDS and TCS were integrated with the new Income tax Website.

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So what if instead of ignoring this problem, we actually shift the year to calendar year? Is it possible? How will that help?

As part of the British inheritance, for about 150 years, India follows April-March as the fiscal year. But does it need to? A government appointed committee headed by former Economic Adviser Shankar Acharya recommended a change in financial year from April-March to Calendar year Jan-December back in December 2016. This did spark the debate at the time but it was all forgotten rather quickly.? Interestingly, the Congress Government in 1984 also gave a shot at changing the financial year, appointing former RBI Governor L K Jha to head a committee to explore the benefits of such a move. The then idea was to ensure speedy allocation of funds during the drought years as India’s monsoon is between the months of June-September. ????? ?

About 156 countries in the world follow our standard calendar (January-December) year as their fiscal year. If India changes to calendar year, it will have the following advantages.

2.???? The shifting of financial year will align India with the prevailing practice of developed countries.

3.???? For MNC firms in India, which are currently dealing with two types of financial years here and at the parent country, a uniform structure will be a relief to manage their accounts in their home country as well as abroad.

4.???? The financial year would end in the month of December, which means the next 3 months(January-March) would be the typical filing period when it is winter in India and the school and colleges are running and work in general tends to run smoothly as it is not a school holiday season.

5.???? The TDS of salaried taxpayer would be paid by 7th January by their respective employers and TDS returns would ideally be filed by 31st January. This in turn leads to the 26AS being updated by 5th February on late side and such taxpayers would effectively get 53-54 days till 31st March to file their Income Tax Returns vis-a vis 45 days or less currently. Alignment of all TDS/TCS returns to be filed by January 31st would lead to banks and other financial institutions filing their TDS returns in January itself, thereby giving taxpayers 53-60 days at least to file their income tax returns, thereby decreasing the load on the income tax portal and increase in efficiency.

6.???? The change will also align the financial year with the monsoon cycle and also with the country’s crop harvests both for Rabi and Kharif seasons. A good amount of data regarding agriculture will be available in October and November which will also happen to be near the year ending.?

7.???? Typically, it rains very heavily in July in most part of India and traffic is a nightmare. Roads are in a very poor condition especially in the Month of July. Also in the monsoon, there are several power cuts and internet disruptions due to heavy Rains which affect the Income tax filing indirectly and this will not be the case if the due date is 31st March which is spring time in India.

8.???? Every year we see a case of incessant flooding in the northern hilly areas like Himachal, Uttarakhand causing havoc and lot of life and property destruction especially in July. Even in Delhi, Uttar Pradesh, Assam and in metros like Mumbai, Ahmedabad, Bangalore and Chenai, there is flooding. This will not be the case in February and March thereby not causing any weather disruptions.

9.???? The Central budget would have to be shifted to the month of November. This can be made as a part of the winter session of Parliament which generally is in the month of November after Diwali. Typically, a Budget session is called for in February after the winter session of Parliament ends. At present, the budget cycle suffers due to lack of sufficient data on crop income, monsoon forecast etc.

10.The Income tax Collections of the country by way of Advance tax and TDS/TCS will be preponed which will be beneficial to the exchequer.

11. Currently, as the Return filing date is 31st July, the Tax Audit and the Statutory Audit Compliances of Private Limited Companies take a backseat during June and July whereas the data for same is not necessarily ready by April for the year ended 31st March and May is a vacation month. This causes a big shortage of days i:e less than 2 months for practising Chartered Accountants to complete the tax Audits and Statutory Audits by 30th September. August and September in India typically have lot of public holidays and festivals like Independence Day, Raksha Bandhan, Onam, Ganesh Chaturthi which decease productivity and increase the pressure on professionals to finish the audits in a race against time.?

This will change considerably if the due date of Income tax is shifted to 31st March, Chartered accountants can get at least 90 days till 30th June to complete the Tax Audits and Statutory Audit requirements, thereby also increasing the efficiency and accuracy of Audit Reports filed.

12.Organizations Like the International Monetary fund (IMF) and World bank follow Calendar year. Cross border transactions and taxation will become more efficient.

13. The time given to revise individual returns could be then preponed to 30th June aligning it with the Tax Audit due date. This will help the Income Tax department to process all the individual returns by 30th June as these days AI is used and intimation u/s 143(1) is generated almost instantaneously. This in turn will give the Income Tax department more time to process returns which are liable to audit and returns of companies.?

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