In a significant move aimed at easing the compliance burden for specific categories of taxpayers, the Central Board of Direct Taxes (CBDT) has announced an extension of the filing deadline for Income Tax Returns (ITR) 3 and 4. According to CBDT Chairman Ravi Agrawal, in an exclusive interview with TOI, the deadline for these returns has been shifted to August 31, providing an extra month for business owners, professionals, freelancers, and individuals under presumptive taxation schemes to file their returns.
Staggered Compliance and Revised Deadlines
Currently, the due date for ITR 1 to 4 and non-audited parts of ITR 5 is July 31. However, to address complaints about bunching and streamline the filing process, the CBDT has decided to retain the July 31 deadline for ITR 1 and 2, while extending it to August 31 for ITR 3 and 4. This staggered approach is designed to make compliance easier and more manageable for taxpayers. Additionally, taxpayers will be allowed to revise their returns until March, offering further flexibility in the filing process.
Tax Buoyancy and Revenue Targets
When questioned about the strategy to achieve revenue targets, Agrawal highlighted that the target for the next fiscal year is based on a nominal GDP growth projection of 10%, with an added focus on tax buoyancy. Tax buoyancy refers to the ratio of tax growth to GDP expansion, and the projected levels are deemed reasonable. Agrawal expressed confidence in achieving these targets, citing various initiatives that have been implemented to foster trust and encourage better compliance among taxpayers.
Initiatives for Enhanced Compliance
The CBDT has ushered in several measures aimed at promoting better compliance, which in turn helps convert data into revenue. A key development is the upcoming new Income Tax Act, which promises to be simpler and more transparent. Agrawal emphasized that this will bring greater clarity to processes and trigger higher compliance levels. The rules and forms for the new act are scheduled to be notified in February, with forms being made smarter and aligned with tax returns or audit reports to address any disconnects or discrepancies.
Identifying Red Flags and Data Analytics
Part of the compliance strategy involves identifying red flags, such as incorrect claims or failure to incorporate certain income. The CBDT leverages data analytics to tally information and strengthen the process. With 650 crore transaction data pieces handled annually, the department ensures 100% data security while using this information to send a strong message to the taxpayer community about the importance of consistency. Agrawal noted that this data-driven approach has already initiated positive responses from taxpayers.
Widening and Deepening the Tax Base
Agrawal elaborated on the dual approach of widening and deepening the tax base. Widening involves expanding the base to include not only those who file returns but also individuals who have paid taxes via TDS or TCS without filing returns. Deepening refers to ensuring that reported income accurately reflects actual earnings, potentially leading to higher income declarations. The CBDT's NUDGE exercise is a step in this direction, focusing on scientific analysis and data maturity to take appropriate actions.
Success Stories and Revenue Gains
In the last two years, these efforts have yielded impressive results, with 1.1 crore people either updating or revising their returns, generating additional revenue of Rs 8,800 crore. Out of this, Rs 1,750 crore came from cases where refund claims were reduced. Agrawal highlighted that all these actions were carried out in a non-intrusive manner, relying solely on available data. The success of widening and deepening initiatives depends heavily on TDS outreach and inter-departmental data sharing.
Transition to the New Tax Regime
Regarding the adoption of the new tax regime, Agrawal shared that in assessment year 2024-25 (FY24), 76% of taxpayers had shifted to the new regime, and this number increased to 88% in AY 25-26 (FY25). This indicates a growing acceptance and transition among taxpayers towards the simplified tax structure.
Market Reaction to STT and Future Reviews
Addressing concerns about adverse market reactions to the Securities Transaction Tax (STT) on the first day, Agrawal stated that the market has since shown signs of settling down. As of now, there are no plans for a review, but the situation continues to be monitored closely.
Overall, the CBDT's initiatives, including the deadline extension, new tax act, and data-driven compliance strategies, aim to create a more taxpayer-friendly environment while ensuring robust revenue collection and a broader tax base.
