The question is what can the tax
department do to encourage people to file their returns well before time? This is a behavioural issue since it is universal human nature to wait till the last-minute to do the needful. And it is not because of any complication. Both the salaried, whose return-filing is a simple process, and the businessman, whose filing involves capital gains and computation of business income, behave in the same manner. All the information needed to finalise the return is available by the middle of June (when the tax deductible at source have been processed and the final Form 26AS is available), and there is no earthly reason why the return cannot be filed by well before the deadline.
The need, thus, is to create an artificial earlier deadline (say July 15 every year) which can lead to some benefits for those who adhere to the artificial early deadline and encourage them to overcome the very tendency to put off things till the last possible minute.
One effective way to do this would be to give a guarantee to those who file their returns by July 15 of the year that their preliminary assessment (called Section 143(1) assessment in tax parlance) will be completed by December 31 of the same year and the refund, if any, due under the preliminary assessment will also be provided by that time. This will ensure that a vast majority of the returns which have small and large refunds will be incentivised to file their returns at least 15 days earlier then the statutory deadline. It helps that the tax department, which in any case, processes most of the refund cases early nowadays. This also saves money for the department as it will not have to pay unnecessary interest on refund that it must provide for in any case. It also creates an excellent image of the department in the eyes of the taxpayers.
Of course, this gentle nudge costs nothing, but will only work if the promise is seen to be credible. The promise should eventually be put in the Income Tax Act with an automatic increase in interest rate on the refund from 6 per cent a year to say 9 per cent a year, if the refund is delayed beyond the promised date.
This suggestion, if believed by the taxpayers, would segregate the refund seekers from the other taxpayers and make them file their returns well in advance of the actual deadline. This will balance out the pressure on the department’s website and hopefully, it will not crash next year.
Of course, all this will reduce ceaseless speculation on whether the deadline for filing returns will be extended or not. But the Indian taxpayer is unlikely to complain.
The author is a Sebi-registered investment advisor