Encouraging Voluntary Filing by Reforming Scrutiny

Recent proposals suggest that taxpayers often hesitate to report higher incomes, fearing increased scrutiny and additional tax demands.

Recent proposals in the realm of direct tax administration aim to encourage voluntary compliance, expand the tax base, and streamline processes. Here's a closer look at some key suggestions:

Encouraging Voluntary Filing by Reforming Scrutiny

Certain proposals highlight that taxpayers often hesitate to report higher incomes due to concerns over increased scrutiny and additional tax demands. This “every return is suspicious” environment is seen as a hindrance to voluntary compliance. At the same time, it remains crucial to maintain rigorous checks on those who deliberately exploit legal loopholes.

To strike a balance, authorities could shift to a more risk-based and data-driven scrutiny system rather than blanket assessments. This approach would encourage honest disclosures and reassure taxpayers that genuine errors will not lead to harsh penalties—even as willful evasion is tackled firmly.

Stricter PAN Requirements

One set of recommendations aims to bring more individuals into the tax net by making PAN mandatory for property transactions above ₹1 lakh, reducing the TDS threshold for real estate sales from ₹50 lakh to ₹1 lakh, and requiring PAN during building plan approvals above 500 sq. ft.

While linking major transactions directly to tax authorities could strengthen oversight, significantly lowering thresholds might flood the system with minor transactions and renovations, creating unnecessary bureaucratic hurdles for law-abiding taxpayers. Effective data-processing infrastructure would be crucial to ensure real benefits in transparency without overwhelming genuine filers.

Wire Transfer Mandate for Real Estate Transactions to Curb Cash Deals

In an effort to crack down on unreported deals, it has been proposed that any real estate transaction over ₹50,000 be conducted exclusively via digital means. Such a move could deter cash-based dealings and make high-value transfers easier to track.

However, some observers argue that a ₹50,000 cutoff is too low, particularly in regions lacking robust digital infrastructure. A phased rollout or transitional measures could prevent unintended burdens on smaller transactions while ensuring more significant evasions are addressed.

Time-Bound Disposal of Petitions and Appeals

Certain proposals call for imposing strict 30-day deadlines on rectification petitions, condonation petitions, and revisional orders, aligning these with the payment deadlines that taxpayers already face. Expedited decision-making could spare taxpayers the financial and emotional strain of paying disputed amounts or accruing interest while awaiting outcomes.

However, without sufficient staffing, specialized training, and robust digital support, these deadlines could transform into new administrative hurdles instead of effectively streamlining the process.

Rationalizing Tax Provisions and Regimes

Among various reform ideas, raising the basic exemption limit to ₹5 lakh (with higher thresholds for senior citizens) could alleviate compliance burdens for lower-income groups, though it may reduce total tax collections unless other revenue sources are strengthened.

Additionally, the 20% TCS on foreign travel has been labeled disproportionate, as it appears to penalize travelers rather than functioning as an effective monitoring tool. Some commentators also advocate standardizing Presumptive Taxation (Sections 44AD, 44ADA, 44AE), including lower percentages for digital receipts, to encourage cashless transactions.

Simplifying E-Proceedings and Appeals

Recent recommendations focus on eliminating the need for manual filings in e-appeals and improving the e-proceedings portal to sort notices by assessment year and highlight new notices first. A robust mail-tracking system would also confirm receipt of notices and taxpayer responses.

While digital platforms offer a promising route toward efficiency, short response windows and repetitive demands have caused frustration. In some instances, irrelevant queries highlight data-sharing gaps within the system, pointing to a clear need for greater interdepartmental coordination and staff training.

Compensation for Wrong Assessments

One particularly bold suggestion involves compensating taxpayers who successfully overturn flawed or overly aggressive assessments at a rate equal to the original demand—aimed at alleviating both the mental and financial burdens of disputing such claims. Critics warn this could spur a spike in compensation requests, potentially overloading the system with added litigation.

A more measured approach, such as partial or structured compensation, may help balance the need to protect taxpayers from unjust demands against the possibility of frivolous claims.

Monitoring Form 60/61 and Other Administrative Enhancements

Proposals also emphasize stricter oversight of Form 60/61 submissions, potentially linked to Aadhaar or other identifiers, alongside stronger supervision at banks and financial institutions to ensure accurate submissions. Achieving tangible results requires advanced data-sharing mechanisms and a modern IT ecosystem.

A centralized, well-maintained repository would help reconcile multiple Form 60/61 entries, prevent redundant filings, and identify potential noncompliance.