Budget 2025: Expectations for Streamlined Personal Tax Compliance and Greater Transparency

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With the rise of digital technology, the Income Tax Department has made notable strides in streamlining tax processes. As the Union Budget 2025 approaches, there is growing anticipation that further steps will be taken to simplify personal tax compliance and boost transparency. This initiative aligns with the government’s ongoing efforts to foster voluntary tax compliance and alleviate administrative challenges for taxpayers.

Here are some key areas where further digitization could enhance the ease of tax compliance for individuals:

1. Streamlining Input Data Sources

Despite advances in technology, many taxpayers still face challenges in compiling necessary data for their tax returns. Currently, individuals need to reference multiple data sources like Form 26AS (for TDS credits), Annual Information Statement (AIS), and Tax Information Statement (TIS) for specific income and advance tax details. Additionally, Indian employers file reports with the Reserve Bank of India (RBI) for equity shares allotted under Employee Stock Option Plans (ESOPs), which could be integrated into the AIS/TIS to reduce errors and omissions.

A consolidated form that pre-populates taxpayer information would be incredibly helpful. This approach would not only ensure data accuracy but also validate information, reducing the likelihood of errors during the filing process.

2. Improving Tax Filing with Automation

Pre-filled Income Tax Returns (ITRs) have already simplified tax filing, but there is room for further improvement. The tax department could enhance data extraction and automate the integration of information from various sources such as banks, employers, mutual funds, and investment managers.

For example, the AIS Form could capture detailed salary income breakdowns, including allowances, exemptions, and capital gains, such as transactions in crypto assets or F&O (Futures & Options). Currently, taxpayers manually input these details, which is time-consuming, especially for those with numerous transactions. Automating this process would streamline the tax filing procedure and ensure greater accuracy in reporting.

3. Simplifying Tax Residency Certificate (TRC) Application

Indian residents claiming relief under a Double Taxation Avoidance Agreement (DTAA) often need a Tax Residency Certificate (TRC). The current process requires filing manual applications with tax officers, resulting in delays. Moving this system online could significantly expedite the process, improving the experience for taxpayers seeking this important document.

4. Optimizing PAN Transfer System

When individuals relocate or change their residential status, they must manually file for a Permanent Account Number (PAN) transfer, which can be a time-consuming and frustrating process. By implementing an online PAN transfer system, the tax authorities could eliminate manual steps and streamline the process, reducing delays for taxpayers who need their PAN linked to new locations or statuses.

5. Addressing OTP Challenges

Currently, accessing the Income Tax portal requires a one-time password (OTP) sent to a registered mobile number. If the number is inactive, taxpayers are forced to rely on lengthy processes to reset their passwords. To improve efficiency, the Tax Department could offer the option to send OTPs to a registered email address, along with additional verification methods like face recognition. This would ensure quicker and more convenient access for taxpayers.

6. Facilitating Tax Transactions for Non-Resident Taxpayers

Taxpayers living outside India and without an Indian bank account often struggle with making tax payments or receiving refunds, as transactions are restricted to authorized Indian banks. Introducing alternative banking methods to facilitate tax payments and refunds to foreign bank accounts could ease the burden on non-resident taxpayers, making the process more accessible.

Conclusion

The ongoing digitization of tax compliance has significant advantages for taxpayers, from greater transparency to improved convenience. By further simplifying processes, reducing paperwork, and enabling faster communication, these advancements will benefit individuals across India, especially those in remote areas or with complex tax situations. The Budget 2025 offers a unique opportunity to enhance these initiatives, ensuring smoother, more efficient tax compliance for all.

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