A tricky intervention?

In order to streamline the tax mechanism in India, the Income Tax Department has introduced the option to ‘discard ITR (Income Tax Return)’. Under this option, taxpayers can straightaway discard their unverified and pending ITR, subject to certain conditions. In the previous system, they had to revise their initial ITR in case of inconsistencies — leading to a cumbersome process. Compliance has always been a key issue, and streamlining of the taxation process is an essential pre-requisite to ensure greater compliance. However, whether or not the newly added option of discarding ITR will lead to better streamlining of the process is a tricky question. On a positive note, it could be beneficial for individuals who have made genuine errors or omissions in their initial tax filings — providing them an escape from a rather cumbersome process. Furthermore, a discard option could provide taxpayers with greater flexibility in managing their financial information. Life events, changes in income, or other circumstances may necessitate adjustments, and having the ability to discard and refile could accommodate such changes more seamlessly. Also, allowing individuals to discard and refile could lead to more timely resolutions of tax-related issues. This may be particularly relevant for cases where errors are identified shortly after the initial filing. On the flip side, allowing taxpayers to discard their income tax return may introduce concerns about transparency in the tax system. The ability to discard filings may open avenues for abuse, as individuals could potentially manipulate their financial information without sufficient oversight. Furthermore, providing an option to discard tax returns may pose risks of abuse and fraud. Tax authorities rely on accurate and truthful information to enforce tax laws and ensure fair revenue collection. Allowing individuals to easily discard returns might create opportunities for evasion and manipulation. Given that there is limited precedence regarding the efficacy of ‘discard tax’ measure, the nature and extent of its impact on the compliance front remains uncertain. On one hand, allowing individuals to discard their tax returns could undermine the concept of accountability and adherence to tax regulations, potentially leading to a decrease in overall compliance. On the other hand, A discard option might encourage taxpayers to promptly correct errors, improving overall compliance. If individuals know they can rectify mistakes easily, they may be more willing to ensure the accuracy of their financial information. Away from these pros and cons, the ‘discard tax’ option can face significant challenges on two fronts — administrative and legal. Currently, there is no legal provision for discarding an ITR, raising potential questions about its legal validity in the future. ‘Discard tax’ measure will have to align with the specific legal framework of the Indian tax jurisdiction. On the administrative front, implementing a system for discarding income tax returns may introduce challenges for tax authorities. It could complicate the process of tracking financial transactions and verifying the accuracy of reported information. This can, however, be countered because tax authorities may find it more efficient to allow taxpayers to discard and submit a corrected return. To sum up, while the efforts to streamline the taxation process to increase compliance is laudable, it is important to ensure that the introduced changes are foolproof. In case of prevalence of loopholes, the provision of ‘discard tax’ may backfire and create administrative, legal and compliance-related hurdles. Indeed, India’s taxation system requires certain changes, but it is crucial to embark on this tax-related changes with meticulous planning and utmost care. Everything said and done, it is also important to allow a fair bit of flexibility in the changes, including the introduction of ‘discard tax’ option. If the potential shortcomings and flaws can be improved over a course of time, consolidation of a better tax system may just be on the horizon.