What will it take to automate ITR filing

For many taxpayers with simple income profile, filing an Income Tax Return (ITR) has become easier over the years, but it remains an important annual compliance requirement that demands time and attention.

With better technology and rising expectations for convenience, a question arises whether we can move towards complete automation of ITR filing.Let's look at how our country is progressing towards a simpler, smarter, and user-friendly ITR filing experience.

Progress so far

India's tax system has made greater progress in making the tax return filing easier by pulling together data from various sources into the Income tax department's database.

Key features of the current system:

Easy Registration: Sign up on the e-filing portal, using PAN as the user ID, create a password, and you are ready to upload your tax return.Pre-filled tax forms:Many details now appear automatically in the ITR, such as personal information, PAN, Aadhaar, bank information, salary data, personal income and tax paid details.Details from earlier year tax returns: Information reported in earlier years, such as foreign assets, directorships, unlisted shares etc.

is also pre-populated, saving time and effort.Financial Overview Statements: The Annual Information Statement (AIS) and Taxpayer Information Summary (TIS) provide a consolidated list of all your income, tax and financial activities.Quick Online Verification: You can verify your tax return instantly using Aadhaar OTP or net banking, so you are no longer required to mail signed ITR-V form to the tax authorities.While the taxpayer is required to verify & reconcile the details appearing in the income tax database, the above features have reduced mistakes when entering data and made the process much easier.Achieving full automation: Next stepsIncome tax department has already made strong progress through AIS/TIS, pre-filled returns, faceless assessments, and a rapidly improving e-filing portal. However, a truly automated tax return filing needs more than upgrades but a structural change. Here are a few areas that could be looked at for further improvement: Timely reporting: All financial institutions and govt systems need to share information through common, standardised channels so that tax department can compile accurate data.Pre-filled ITRs to include complete data: Today's prefilled returns still miss several income items, such as interest income splits, capital gains data from different brokers, rental income, exempt categories, and digital asset earnings etc.Simplify tax laws to match automation capabilities: Govt can move towards a single, simplified tax regime along with rationalising capital gains and TDS provisions to automate the filings for simpler tax returns.Continue to enhance the IT portal: The e-filing portal has already improved the online filing experience, but there's still room to make it faster and more efficient.

Quicker AIS/TIS updates and automatic real-time error checks before submission, could be few steps to make the process easier for taxpayers.Another widely discussed idea is whether employers can submit relevant details for their salaried employees to eliminate ITR filing.Right now, Form 16 captures data regarding salary, deduction(s), taxes and personal income details to certain extent. However, the complexity arises for employees with multiple income streams, especially foreign income or other personal financial details that employers will not be aware of.

While it's an idea with clear potential, the same requires comprehensive design to work for every taxpayer.Way ForwardFull automation is certainly within reach for simpler tax returns. However, tax returns involving tax-treaty claims (including Form 67 filings), business income, capital gains, foreign income, foreign asset disclosures etc., will still need to follow the existing process due to complexities, with automation applied, wherever practical.Though certain challenges remain, the tax department continues to advance towards a smarter, smoother, and more intuitive tax-filing system, for better taxpayer experience.(Reddy is tax partner, EY India; Garima Agrawal, senior tax professional with EY, has also contributed to the article. Views expressed are personal)