How tax systems penalise even honest taxpayers

A man hoped marriage would bring small comforts — like someone to make him morning tea. Months later, he sighs and says to a friend: "Earlier I made one cup, now I make two." So much for simplifying life.

- HARSH ROONGTA

I apologise for starting the column with a politically incorrect joke. But it sums up the situation well: Things meant to ease life sometimes cause double the effort.

The digital tax era promised ease — pre-filled returns, real-time data, and seamless reporting. Instead, it has created a Kafkaesque mess, especially for taxpayers who added a spouse or parent as joint holder to simplify succession.

Here is how it plays out: Mutual funds (MFs) are required to report transactions of both the primary and the joint holder, according to the tax department's format. So, MFs report it under both names.

The tax department generates the annual information statement based on this data. The transactions show up under both holders. The primary holder accepts it. But the joint holder — who neither invested nor benefited — disputes the entry, explaining: "This pertains to the primary holder. I am listed only for succession purposes." The tax department forwards the dispute to the MF. Since the format requires reporting under both names, the fund responds that there is "no error". Admitting an error could invite a ₹50,000 penalty per case.