Pre-Filled Tax Returns Impact Privacy: Government Should Seek Permission Before Offering This Facility

The revenue department in the Finance Ministry is said to be working on expanding the scope of pre-filled income-tax returns in order to make tax-filing a breeze for ordinary taxpayers.

A news report today (19 August) says that the department is holding discussions with market regulator Securities and Exchange Board of India (SEBI) to find a way to get details like dividends received and capital gains on shares and mutual funds included in pre-filled returns.

A broad indication to this effect was given by Finance Minister Nirmala Sitharaman in her budget speech, where she said the following: “Pre-filled tax returns will be made available to taxpayers which will contain details of salary income, capital gains from securities, bank interest and dividends, etc. and tax deductions. Information regarding these incomes will be collected from the concerned sources such as banks, stock exchanges, mutual funds, EPFO, state registration departments, etc. This will not only significantly reduce the time taken to file a tax return, but will also ensure accuracy of reporting of income and taxes.”

If this happens, it will be a giant leap for ease of paying taxes, but it will also be a giant leap away from basic privacy protection.

While basic financial details about salary income and tax deducted at source are already available with the taxman through AS 26 statements, filling in details like interest earned on bank fixed deposits, or capital gains from shares and mutual funds will involve the tax department obtaining these details from mutual fund houses, brokerages, depositories, banks and non-bank financial institutions.

This is going one level too deep in terms of privacy invasion.

The taxman needs to follow a simple rule: if you are going to source all kinds of financial information about a taxpayer in the name of ease of filing returns from multiple sources, the first thing you must do is obtain the taxpayers’ permission to collect these details from various sources.

Otherwise, this would be a mockery of the basic rules of privacy protection.