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Tuesday, April 14, 2009

Mechanisms of tax administration

by Rajiv Seturam.

My profession consists of helping people in their legal responsibility of complying with tax laws. On 1 April 2009, I was on the website of the Income Tax Department. I realized that the department has brought about an "8th amendment to the Income Tax Rules amending rules 30, 31, 31A, 31AA".

As I went through the amendments I realized that the changes were far reaching. The challans for tax deposit, the forms for TDS returns and the format for tax certificates have all undergone significant changes. In addition, a new form has also been introduced. All these changes were applicable with effect from 1st of April 2009. But the notification was released on 31st March so there was no warning.

I decided to call up some people who are involved in tax administration to find out what was going on:

  • I called up some members of CBDT. They had not heard anything of about this 8th amendment.
  • Then I called up Directorate of Income Tax (Systems) who is responsible for implementation of computerisation of income tax. They did not know anything about it.
  • NSDL is supposed to be integral to computerisation of income tax. Everyone talks about the TIN and we use it every day but it is not ready for these new forms.
  • Banks and the CGA had also not heard about these new forms.

So it wasn't about a Stalinist government that wanted to keep its citizens in the dark. Most of government was also in the dark. This lack of communication is a bad idea. Income tax department should only make these changes through a proper consultative process. Their project management will become impossible if their own IT guys do not know about these changes.

Now let us briefly look at the implications of these changes:

  • The challan for tax deposit has been changed and has become a combination of a challan and a mini return. The banks will not be able to handle it themselves unless the TIN is ready to first receive it and pass the payment responsibility to the banks. So until TIN and banks are ready with the changes, it seems to me that nobody needs to deposit TDS anymore. Until TIN, banks, government deductors and small deductors are all part of an IT system, it will not work. TDS deposits will drop.
  • The department has introduced a new unique transaction id for each deductee transaction in the TDS return which is to be included in Form 16 or Form 16 A by the deductor. The taxpayer will transcribe the same into the IT return. It now looks like the TDS return can avoid supplying the PAN number of the deductee. There is going to be a new problem of tracking thousands of unique transaction IDs. Many of my clients would be happy not to give their PAN in all transactions. After years of pushing in favour of PAN, I do not understand why this is now being abandoned.


  1. Well done my friend Ajay. I had asked you a question a couple of weeks back and you didn't answer. But your articles are very nice. You got quoted extensively in the Economist this time and I was proud that I know you (though not so proud 'cos I have no idea where that was quoted from. Maybe I should read more carefully).
    Sardar Garib Singh

  2. Rajiv, excellent article. Really Gormint of Indya only tells phoreners again and again how democratic it is.

    I think gormint should take on consulting contract from TCS/Infosys/Wipro on "process improvement"...sadly however IT is only for phoren companies. What we will do with this IT Bye-T!

    But seriously, India is embarking on an experiment. the one great unique contribution. Proving to worls That we can send sattelites to space without having sidewalks/footpaths, water, or national unity. It was phoren conventional wisdom that science came AFTER the basics lower down on the pyramid. India is proving them wrong! Jay Ho!


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