Paving the way for a low-cost paperless filing of income tax returns and eliminating Tax Deducted at Source frauds, the government on Wednesday gave the go-ahead for setting up of the Phase-II of the Tax Information Network at a cost of over Rs 100 crore (Rs 1 billion).

Phase-II of TIN is aimed at facilitating e-filing of TDS returns by government and corporate tax deductors to eliminate requirement to enclose copies of documents like challans and would result in significant reduction in cost of compliance.

Necessary legal changes have been made in the Income Tax with effect from April 1, 2005 in line with the setting up of TIN.

According to a release issued after a Cabinet meeting, the Phase-II would provide for collection of deductee-wise data in TDS/TCS [Get Quote] (Tax Collected at Source) returns for eventual dematerialisation of TDS certificates, computerisation of Annual Information Returns of high value transaction and integration of information relating to processing of returns of income.

Dematerialisation of TDS and TCS certificates will enable paperless filing of returns of income by the deductees on Internet, it said.

Cross verification of TDS and TCS deducted by the tax deductors vis-a-vis credit claimed by corresponding deductees will eliminate TDS frauds, the release added.

The Phase-II of TIN is estimated to cost Rs 101.25 crore (Rs 1.01 billion) over a period of three years.

Out of this, the government would pay a sum of Rs 68.75 crore (Rs 687.7 million) and Rs 32.5 crore (Rs 325 million) would be realised from the tax deductors, the release said.

As far as Phase-I of TIN is concerned, the facilities for electronic filing of TDS returns have become functional from January 21, 2004 and facilities for transmission of tax payment data from banks to the department from June 1, 2004.

More than 435,000 e-TDS returns have been filed with TIN, the release said adding information of over one crore challans has come to TIN on Online Tax Accounting System from 11,905 branches of 32 designated banks collecting direct taxes.