COMPUTERIZATION OF FORM 121 (EARLIER 15G/H)

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BACKGROUND

Forms 15G/H, used for declaring non-taxable income to avoid TDS, were mostly paper-based and were inconvenient for everybody, the tax-payer, the person receiving it and the IT Deptt. Now they have been replaced by Form 121, but all their disadvantages still remain. These forms do not provide the necessary information to the IT Deptt. and it is quite difficult for them to verify whether the tax-payer has provided the correct data in the form.

Some organizations today allow the tax-payers to submit the basic data required for filling these forms online and they do not insist that the tax-payers submit a hard copy. This saves some inconvenience for the tax-payers but not for these organizations or the IT Deptt. because further processing of these forms remains paper-based. Actually, these organizations may be creating these forms on the basis of the online data provided by the tax-payer and printing these forms themselves on paper for onward submission to the IT Deptt.

PROPOSAL

In this article I suggest a way for the full computerization of these forms which will solve all the problems described above. The method is completely paperless and most importantly, it is very easy and simple for everybody.

We all have our accounts on the portal of the Income-tax Deptt. where we file our Income-tax returns every year. We log into their site using our User Id (which is nothing but our PAN) and password for filing our return and accessing some other data like our AIS, TIS, Form 26AS etc.

NEW LINK AND FINANCIAL YEAR SELECTION

The IT Deptt. should create a new link on their web-site which may be worded something like – “Declaration of Non-taxable income to Avoid TDS”. On clicking this link, the tax-payer will be asked to select the Financial Year for which he wants to furnish this declaration. Normally, this will be current financial year only. There is no relevance of any old financial year. However, during the months of January to March, some tax-payers may like to furnish declaration for the next financial year, i.e., the one which will start from April and, therefore, they may be allowed to choose forthcoming financial year also besides the current year.

INCOME DECLARATION

After this, the tax-payer will be asked to type his estimated total income for the chosen financial year which should be below taxable limit. Currently, it will be up to 4 Lakh for people under 60 years and up to 12 Lakh for those above this age. There will be no need for the tax-payer to type his age since this is already available with the IT Deptt. Also, there is no need for him to furnish his Name, Address, Permanent Account Number, Status, Residential status, Email id, Contact number, Date of Birth/ Incorporation since all this data is already known to the Deptt.

ENTRY OF TAN’S

After selecting the financial year and typing the estimated total income for that year, the tax-payer will be asked to type TAN of all the banks and other institutions where he has investments and who would be paying him interests/dividends etc. during the financial year. As per the current practices, he will need to type TAN of all the banks which are expected to pay him interest of more than Rs. 1 Lakh if he is a Sr. Citizen. Otherwise, he will type the TAN of all those banks who will pay him more than Rs. 50,000/-.

This is all. The tax-payers need not do anything more.

UPDATION OF DATABASES BY BANKS/INSTITUTIONS

All the banks/institutions may already be having their accounts on the portal of IT Deptt. If they don’t, their accounts can be created. When a bank logs into its TAN to indicate that they have fixed deposits with the bank. The bank can, thus, update its database accordingly so that its interest calculation software does not deduct IT at source for these tax-payers. They can do it either manually, or still better, can develop a computer program which will read the database of the IT Deptt. and update their databases automatically. For this, they can coordinate with the IT Deptt. and request a controlled/restricted access of its database. The IT Deptt will have to allow the banks to access only PAN of these tax-payers and no other data stored in its database. This has minimal security risk.

DATA ENTRY BY BANKS

The banks will, then, fill following two items on the portal of the IT Deptt. for each tax-payer:

1. Income which the bank will pay to the tax-payer
2. Nature of this income

Even this data entry can be automated by writing a computer program and data can be copied from Banks’s database to IT Deptt.’s database automatically.

There will be no need for the banks to provide following Details of the person responsible for paying income since all this will already be known to the IT Deptt.:

1. Name
2. Address
3. Permanent Account Number
4. Email id
5. Contact number

Also, there will be no need for the tax-payer to provide the details of the 2 previous income-tax returns, newly introduced in Form 121. This is own data of the IT Deptt. and it is already available with them. Further, there will be no need of furnishing any information about Forms 121 filed earlier since income pertaining to the tax-payer provided by all the banks will be available at the same place.

EXAMPLE

There are 3 tax payers whose PAN’s are PAN1, PAN2, and PAN3. There are 4 banks with TAN’s as TAN1, TAN2, TAN3 and TAN4.

The interest amounts to be paid by these banks to the tax-payers are given below:

To tax-payer with PAN1

1. TAN1 will pay Rs. 55,000/-
2. TAN2 Nil
3. TAN3 will pay Rs. 60,000/-
4. TAN4 will pay Rs. 65,000/-

Total Income of PAN1 = Rs. 1,80,000/-

To tax-payer with PAN2

1. TAN1 will pay Rs. 70,000/-
2. TAN2 will pay Rs. 75,000/-
3. TAN3 Nil
4. TAN4 will pay Rs. 80,000/-

Total Income of PAN2 = Rs. 2,25,000/-

To tax-payer with PAN3

1. TAN1 will pay Rs. 85,000/-
2. TAN2 will pay Rs. 90,000/-
3. TAN3 will pay Rs. 95,000/-
4. TAN4 Nil

Total Income of PAN3 = Rs. 2,70,000/-

On the IT Department’s portal, the tax-payers will type the TAN’s of the banks in which they have deposits as given below:

PAN1 will type the following TAN’s

1. TAN1
2. TAN3
3. TAN4

PAN2 will type the following TAN’s

1. TAN1
2. TAN2
3. TAN4

PAN3 will type the following TAN’s

1. TAN1
2. TAN2
3. TAN3

When the banks log into their accounts, they will find PAN’s of various tax-payers as shown below:

TAN1 will see the following PAN’s

1. PAN1
2. PAN2
3. PAN3

TAN2 will see the following PAN’s

1. PAN2
2. PAN3

TAN3 will see the following PAN’s

1. PAN1
2. PAN3

TAN4 will see the following PAN’s

1. PAN1
2. PAN2

Now, the banks will type following interest amounts against each tax-payer:

TAN1 will type the following amounts –

1. PAN1 will be paid Rs. 55,000/-
2. PAN2 will be paid Rs. 70,000/-
3. PAN3 will be paid Rs. 85,000/-

TAN2 will type the following amounts –

1. PAN2 will be paid Rs. 75,000/-
2. PAN3 will be paid Rs. 90,000/-

TAN3 will type the following amounts –

1. PAN1 will be paid Rs. 60,000/-
2. PAN3 will be paid Rs. 95,000/-

TAN4 will type the following amounts -

1. PAN1 will be paid Rs. 65,000/-
2. PAN2 will be paid Rs. 80,000/-

It is advised that the banks should fill the income data, not the tax-payers since tax-payers may not have full expertise in interest calculations and may, therefore, commit mistakes.

Now, the IT Deptt. will have the following data about each tax-payer:

PAN1 is getting following income from various banks –

1. From TAN1 Rs. 55,000/-
2. From TAN3 Rs. 60,000/-
3. From TAN4 Rs. 65,000/-

Total Income = Rs. 1,80,000/-

PAN2 is getting following income from various banks –

1. From TAN1 Rs. 70,000/-
2. From TAN2 Rs. 75,000/-
3. From TAN4 Rs. 80,000/-

Total Income = Rs. 2,25,000/-

PAN3 is getting following income from various banks –

1. From TAN1 Rs. 85,000/-
2. From TAN2 Rs. 90,000/-
3. From TAN3 Rs. 95,000/-

Total Income = Rs. 2,70,000/-

SUMMARY AND CONCLUSION

A tax-payer will have to do this:

1. Log into his account on the IT Deptt.’s portal
2. Select the Financial Year
3. Type his Estimated Income for the Financial Year
4. Type TAN’s of all the banks in which he has opened deposits

Banks accepting Form 121 have to do this:

1. Update their database to not deduct tax for PAN’s on the IT portal
2. Fill payable income of the above PAN’s on the portal

Both these jobs can be automatized by suitable computer programs as explained above. Then the banks’ work is even more simplified.

So simple, isn’t it? The jobs of both, person submitting the form and the person receiving it, are no longer a task. They are a breeze now.

However, the biggest beneficiary will be the IT Deptt. They always keep wondering about total income declared by a tax-payer through his 121 forms. What if it exceeds tax-free income? This is possible since all Forms 121 are submitted to different organizations and there is no coordination between them. I understand that as per rule it is necessary for the banks to forward a copy of Form 121 to the IT Deptt. However, they may not do this religiously. Even if they do, some forms may get lost or misplaced during transit. Also, it is a Herculean task for the IT Deptt. to collate and check millions of forms. However, through the above method the IT Deptt. can, at the click of a mouse button, can generate an exception report of all such tax-payers. No need of breaking head on how much income is declared in current form, how much earlier, and how much is total etc. etc.

I request readers that if they have any acquaintance in the IT Deptt., kindly send the link of this article to them. Also send it to your co-workers, colleagues etc. Some of them may be knowing officials of the deptt.

I also request the readers to highlight any shortcomings, drawbacks, fallacies, infeasibility or inconsistency in the article. Please also comment if article is not sufficiently clear or is confusing.

Thanks.