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Income Tax India's AIS Upgrade: A Closer Look at New Functionalities

Abhishek Raja , Last updated: 16 May 2024  
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For taxpayers in India, the Annual Information Statement (AIS) on the income tax e-filing portal provides a comprehensive view of their financial information. However, inaccuracies in the AIS have led to taxpayer grievances and compliance issues. The Income Tax Department has now upgraded the AIS functionality, allowing taxpayers to track the confirmation status of information reported by sources like banks. This new feature aims to increase transparency by displaying if the source has accepted or rejected feedback on incorrect data in the AIS.

Understanding the Annual Information Statement (AIS) What is AIS and what is its purpose?

The Annual Information Statement (AIS) is a comprehensive document that provides taxpayers with a detailed summary of their financial information. It serves as an extension of Form 26AS, which previously only displayed details of tax deducted at source (TDS) and tax collected at source (TCS). In contrast, the AIS encompasses a broader range of financial transactions, including:

Income Tax India s AIS Upgrade: A Closer Look at New Functionalities
  • Interest earned on savings accounts and deposits
  • Dividends received
  • Stock market and mutual fund transactions
  • Purchase and sale of securities or immovable properties
  • Foreign remittances

The primary objective of introducing the AIS is to promote transparency and voluntary compliance among taxpayers. By presenting a comprehensive view of their financial activities, taxpayers can ensure that all income sources are accurately reported in their income tax returns (ITRs).

Populating AIS with Financial Data

The AIS is populated based on the financial information received from multiple sources, known as reporting entities. These entities are obligated under the Income Tax Act to report high-value transactions to the Income Tax Department. The information in the AIS is displayed only after it is received from these reporting entities, which include:

  1. Banks
  2. Mutual funds
  3. Registry offices
  4. Credit card companies
  5. Retail transaction sources

The AIS consolidates data from these diverse sources, providing taxpayers with a centralized repository of their financial activities throughout the financial year.

 

The importance of accurate information in AIS

Ensuring the accuracy of information in the AIS is crucial for seamless tax compliance. Inaccuracies or discrepancies in the AIS can lead to mismatches with the taxpayer's ITR, potentially resulting in penalties and interest charges. To address this concern, the Income Tax Department has introduced a feedback mechanism within the AIS. Taxpayers can now provide feedback on every transaction displayed in the AIS, allowing them to comment on the accuracy of the information provided by the reporting sources. This feedback is then shared with the respective sources, enabling them to confirm or rectify any incorrect data in an automated manner. By verifying and providing feedback on the AIS, taxpayers can ensure that their financial information is accurately reflected, facilitating seamless pre-filling of ITRs and promoting voluntary compliance. This proactive approach helps identify and address any potential non-compliance issues before filing tax returns.

The New AIS Functionality Describe the new functionality introduced by the Income Tax Department.

The Central Board of Direct Taxes (CBDT) has introduced a new feature in the Annual Information Statement (AIS) that allows taxpayers to monitor the confirmation process of their financial information reported by various sources. This enhancement aims to increase transparency by displaying whether the feedback provided by taxpayers on the accuracy of reported transactions has been acknowledged and acted upon by the relevant source or reporting entities.

Explain the process of providing feedback on transactions in AIS.

Within the AIS, taxpayers have the option to furnish feedback on every transaction displayed. This feedback mechanism enables taxpayers to comment on the accuracy of the information provided by the source of such information. In cases of incorrect reporting, the feedback is automatically shared with the respective source for confirmation in an automated manner.

Highlight the ability to track the status of feedback confirmations from reporting sources.

The new functionality within the AIS offers transparency by providing the following details:

  1. Whether the feedback has been shared with the reporting source for confirmation or not.
  2. The date on which the feedback was shared with the reporting source for confirmation.
  3. The date on which the reporting source responded to the feedback shared for confirmation.
  4. The response provided by the source is based on the taxpayer's feedback, indicating if any correction is required or not.

This initiative allows taxpayers to track the status of their feedback in real-time, ensuring that the information displayed in the AIS accurately reflects their financial transactions.

Benefits and Implications Discuss how the new functionality increases transparency and accountability.

The introduction of the new functionality in the Annual Information Statement (AIS) is a significant step towards increasing transparency and accountability in the tax filing process. By allowing taxpayers to track the confirmation status of information reported by sources like banks, the Income Tax Department is fostering an environment of openness and clarity. This new feature enables taxpayers to see if the information reported by these institutions has been confirmed by the Income Tax Department. It displays whether the feedback provided by the taxpayer has been acted upon by the source, either partially or fully accepting or rejecting the same. In cases of partial or full acceptance, the information is required to be corrected by filing a correction statement with the source.

Explain how it helps taxpayers address inaccuracies and mismatches proactively.

The new functionality empowers taxpayers to proactively address inaccuracies and mismatches in their financial information. Taxpayers can now see the status of each transaction listed in their AIS, which could be confirmed, partially accepted, or rejected. This clarity allows taxpayers to identify and rectify any discrepancies before filing their tax returns. If the reporting source does not accept the feedback, the taxpayer can take the necessary action accordingly. This transparency has now been provided by this new functionality, enabling taxpayers to deal with sources like tax deductors, collectors, or SFT filers, ensuring accurate reporting of financial transactions.

 

Mention the potential impact of reducing tax notices and ensuring smoother compliance.

The new AIS functionality has the potential to significantly reduce the number of tax notices issued by the Income Tax Department. By providing taxpayers with a clear understanding of the confirmation status of their financial information, they can address any discrepancies proactively, reducing the likelihood of mismatches during tax filing. This functionality may help avoid situations where the department raises questions about a taxpayer's income during tax filing, potentially saving them time and hassle. It is expected to increase transparency and enhance taxpayer services, leading to smoother compliance and a more efficient tax filing process overall. Furthermore, the accurate processing and recording of accounting data will be enhanced, enabling businesses to control activities, safeguard assets, and monitor profitability more effectively. Both public and private sector auditors will also benefit from the subsequent verification of the tax declarations made by businesses, further strengthening the overall compliance ecosystem.

Conclusion

The Income Tax Department's upgrade to the Annual Information Statement (AIS) functionality marks a significant stride towards fostering transparency and accountability in the tax filing process. By enabling taxpayers to track the confirmation status of reported financial information, the department aims to empower individuals to proactively address inaccuracies and promote voluntary compliance. This initiative not only strengthens the taxpayer-government relationship but also streamlines the overall tax compliance ecosystem. As taxpayers gain greater visibility into the confirmation process, they can effectively identify and rectify discrepancies before filing their returns. This proactive approach is expected to reduce the issuance of tax notices, ensuring a smoother compliance experience. Moreover, the accurate recording and processing of financial data will benefit both businesses and auditors, further reinforcing the integrity of the tax system. Ultimately, this enhancement underscores the department's commitment to leveraging technology for improved taxpayer services and more efficient tax administration.

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Published by

Abhishek Raja
(Practising CA)
Category Income Tax   Report

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