Broadening the Reach of Annual Information Statement (AIS) for Individual Taxpayers in Budget 2024

Budget 2024 may broaden AIS to cover 6 additional sources of income for individuals. AIS was introduced in Budget 2021 to simplify the process for taxpayers to review their financial details in one place and cross-reference them with their tax returns. This statement offers a comprehensive overview of financial aspects like interest, dividends, and capital gains, essential for filing income tax returns (ITRs).

Individuals can access AIS through their income-tax e-filing accounts, where data is compiled from various entities such as banks, financial institutions, and investment firms. The tax department also allows taxpayers to provide feedback if they identify any discrepancies, duplications, or errors in the AIS data.

Since AIS was introduced in November 2021, it covers various incomes regardless of tax deductions. However, there's room for improvement, like reporting bank accounts and ensuring consistency in rental income reporting. Expanding AIS data in Budget 2024 could enhance its usefulness for individuals and tax authorities alike.

1. Accurate Reporting of Rental Income:

The AIS should consistently show the rental income received by individuals, especially when tenants claim a House Rent Allowance (HRA) exemption through their employer. Despite the landlord's PAN being recorded in the employer's TDS statements (Form 24Q), it may not appear in the landlord's AIS/Form 26AS. This omission can lead to unreported income, particularly for rentals below Rs 50,000 per month, where TDS isn't applicable.

However, it's important to note that the rental amount shown is the exemption claimed by the tenant, which may differ from the actual rent paid. To avoid inconsistencies between the AIS and the ITR, it's crucial to accurately reflect the actual rent paid in the landlord's AIS. This requires a correction in Form 24Q, where employers report both the actual rent paid by employees and the HRA exemption amount. These details can then be sourced from the AIS.

2. Recording Interest on Income Tax Refund:

The AIS currently combines the income tax refund and any interest earned on it into a single sum. Sometimes, the tax department deducts TDS on the interest portion of the income tax refund, which is then shown in Form 26AS. However, if there's no TDS on this interest, taxpayers can find this information in their intimation or Form 26AS after processing their tax return. Unfortunately, individuals often overlook reporting the taxable interest earned from their income tax refund in their ITR.

To address this, the interest earned on income tax refunds should be clearly documented in the AIS, as the tax department already possesses this data. Additionally, providing a distinct breakdown between the income tax refund and the corresponding interest would enhance clarity for taxpayers.

3. Directorships and Ownership of Unlisted Shares:

Individuals must disclose their directorships and ownership of unlisted shares for any duration within the financial year on their ITR. Hence, it's recommended to incorporate a dedicated section in the AIS to gather this data directly from companies. This addition would serve a twofold purpose: decrease instances of underreporting and assist the department in reconciling an individual's assets with the income reported in their ITR.

Furthermore, the tax department could explore establishing a reporting mechanism with the Registrar of Companies, akin to the Statement of Financial Transactions (SFT), to seamlessly integrate this information into the AIS. Such an approach would enhance data accuracy and streamline the reporting procedure.

4. Unlisted Shares’s Sale & Purchase Data:

Unlisted shares are considered assets and are subject to capital gains tax upon sale. By incorporating data on the sale and purchase of unlisted shares into the AIS, tax authorities can improve their monitoring of these transactions. This addition would also enable individual taxpayers to accurately report such transactions, leading to enhanced tax compliance. Currently, the AIS only includes information on the sale and purchase of listed equity shares and mutual funds.

5. Details of Dividend Income:

The AIS currently includes details about the dividend income received by individuals, which has previously been susceptible to under-reporting in ITR filings. To improve the accuracy of income reporting, an option to download a quarterly breakdown of dividends could be introduced. Similar to the existing feature that provides quarterly breakdowns of capital gains and losses, this addition would enhance the usability of the system. It would simplify the process for both individuals and businesses to report dividend income in their ITR filings. Moreover, it would assist individuals in accurately calculating advance tax and avoiding penalties.

6. Bank Account IFSC Reporting:

The AIS captures the interest income earned from savings accounts, along with the name of the bank and the account number from which the interest is received. However, when filling out the ITR form, taxpayers are required to report the IFSC code of the bank, in addition to the account type, account number, and bank name. Since the AIS does not include the IFSC code, individuals must make extra efforts to obtain this information from the bank for reporting purposes. Therefore, including the IFSC code of the bank in the AIS, along with interest income and other relevant details, would simplify the process of filling out the ITR form for individual taxpayers.

Conclusion

Summing it up, budget 2024 may extend AIS coverage to include more income sources for individuals, streamlining tax reporting. AIS, introduced in Budget 2021, offers a comprehensive overview of financial data, aiding in ITR filing. The inclusion of rental income, interest on tax refunds, directorships, unlisted shares, and dividend details in AIS could improve accuracy and compliance. Additionally, reporting bank account IFSC codes in AIS would simplify the ITR filing process for taxpayers.

Also Read: Important Things Taxpayers Are Hoping for in Budget 2024

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