The government created the Annual Information Statement (AIS) as part of the Budget 2021. Its purpose is to help individual taxpayers easily review their financial details in one place and compare them with what they report on their income tax returns. This statement provides an overview of financial information like interest, dividends, and capital gains, which are needed when filing income tax returns.

To access the AIS, individuals can log into their income-tax e-filing account. The data in the AIS comes from various organizations such as banks, brokerage firms, and investment companies. If taxpayers notice any discrepancies or errors in the AIS data, they can provide feedback to the tax department.

Since its introduction in November 2021, the AIS has shown various incomes regardless of whether tax is deducted on them or not. However, there are areas where the AIS could be improved, such as reporting bank accounts or ensuring consistency in reporting rental income from properties.

Expanding and improving the information provided through the AIS can benefit both individuals and tax authorities. Here are some areas where the AIS could potentially be expanded in Budget 2024:

  1. Ensuring Accurate Rental Income Reporting

It's crucial for the Accounting Information System (AIS) to consistently show the rental income received by individuals, especially when tenants claim House Rent Allowance (HRA) exemption through their employer. Even if the landlord's PAN was provided in the TDS statements filed by the employer (Form 24Q), it might not appear in the Landlord's AIS/Form 26AS. This omission could lead to unreported income, particularly when monthly rental income is below Rs 50,000, as such transactions are not subject to Tax Deducted at Source (TDS).

However, it's important to note that the rental amount shown reflects the exemption claimed by the employee-tenant, which might not match the actual rent paid. Therefore, it's crucial to accurately record the actual rent paid in the landlord's AIS to avoid inconsistencies between the AIS and the Income Tax Return (ITR). To rectify this, it's necessary for employers to correct Form 24Q by reporting both the actual rent paid by employees and the HRA exemption amount. These details can then be sourced from the AIS for accurate reporting.

  1. Interest Earned on Income Tax Refunds

Interest earned on income tax refunds, including any additional interest, is recorded as a single sum in the AIS (Automated Income System). Sometimes, the tax department deducts TDS (Tax Deducted at Source) from the interest paid on these refunds, which is then noted in Form 26AS. However, if TDS isn't applied to the interest from income tax refunds, individuals can find this information in their intimation (received after processing their income tax return) or in Form 26AS.

It's important for individuals to remember that interest earned from income tax refunds is also taxable. Failure to report this interest in their Income Tax Return (ITR) is a common mistake.

The AIS readily documents interest earned on income tax refunds, as this data is easily accessible to the income tax department. Additionally, it can provide a clear breakdown between the income tax refund itself and any associated interest.

  1. Reporting Directorships and Ownership of Unlisted Shares

Reporting directorships and ownership of unlisted shares is mandatory when filing your Income Tax Return (ITR). To ensure compliance, it's recommended to include a dedicated section in the Annual Information Statement (AIS) to collect this data directly from companies. This serves two purposes: it reduces instances of people failing to report such information and helps the tax department match an individual's assets with their reported income.

Furthermore, the tax department could explore implementing a reporting system with the Registrar of Companies, similar to the Statement of Financial Transactions (SFT). This would enable seamless integration of data, improving accuracy and simplifying the reporting process.

  1. Unlisted Share Transactions

When you sell or buy unlisted shares, you're dealing with an asset that's subject to capital gains tax. Including data about these transactions in the AIS (Annual Information Statement) helps tax authorities keep track of them better. This also makes it easier for individuals to accurately report such transactions on their taxes, improving overall tax compliance. Currently, the AIS only covers sales and purchases of listed equity shares and mutual funds.

  1. Dividend Income Details

The AIS provides information about the dividends individuals receive, which used to be often under-reported in tax filings. To improve accurate reporting, an option could be added to download a quarterly breakdown of dividends. The AIS already offers a helpful feature for quarterly breakdowns of capital gains and losses. A similar feature for dividends would make the system more user-friendly, helping both individuals and companies accurately report dividend income in their tax filings. This would also assist individuals in calculating advance tax correctly and avoiding penalties.

  1. Reporting IFSC Codes for Bank Accounts Matters

When you earn interest from a bank account, it's important to report it accurately for tax purposes. The Annual Information Statement (AIS) helps with this by showing the interest earned and the bank's name and account number. But when it comes to filing your Income Tax Return (ITR), there's an extra step: reporting the IFSC (Indian Financial System Code) of your bank.

The ITR form requires taxpayers to include the IFSC along with other details like the type of account and account number. Here's the catch: the IFSC isn't included in the AIS. This means individuals have to go the extra mile to find the IFSC from their bank in order to report it correctly.

Including the IFSC in the AIS would make things much simpler for taxpayers. It would mean all the necessary information for filling out the ITR form is in one place, saving time and effort. So, ensuring that the IFSC is included in the AIS could greatly streamline the tax filing process for individuals.