Adding yet another brick to the wall of structural reforms that have been implemented by the Indian government, the Prime Minister, Narendra Modi, unveiled a multi-faceted platform for ‘Transparent Taxation – Honouring the Honest’ in August 2020. One of the main features of this platform is the reinforcement of the faceless assessment scheme for all categories of taxpayers across the country.
The scheme will revolutionise the way in which the scrutiny assessments of the tax returns that are filed by taxpayers are conducted and will fully digitise the interactions between taxpayers and the revenue. The scheme has been introduced with the intention of making direct tax administration seamless, painless, and faceless.
Similar to the revenue audits that are carried out in many countries, the Indian revenue authorities also conduct assessment proceedings in order to determine whether any adjustments are required to the income that taxpayers have declared on their tax returns. Historically, such proceedings have involved sitting across the table from the tax officer, providing details and clarifications from time to time. The faceless assessment scheme aims to change that completely.
About the new schemeThe foundations for introducing digital communications with taxpayers were laid five years ago, when the Indian revenue authorities officially started using emails to interact with taxpayers. Slowly but steadily, the revenue authorities as well as the taxpayers have adapted to technology, and this encouraged the government to launch a fully-fledged e-assessment scheme in 2019 (which has now been renamed the faceless assessment scheme).
In September 2019, approximately 58,000 cases were selected on a pilot basis for assessments to be conducted in a faceless manner, i.e. without the taxpayer having to visit the tax officer. However, the scheme has now been expanded to cover all new and pending assessments.
This effectively means that all communications and flows of information between the taxpayer and the revenue officials during the assessment proceedings will be digitally transmitted. The revenue officer conducting the assessment will have no direct interaction with the taxpayer, who will not even know the identity of the revenue officer who is conducting the assessment. In exceptional circumstances, however, there are provisions for personal hearing (via video-conferencing) to be granted to the taxpayer.
The scheme provides that all assessment orders will now be passed by a nodal agency, i.e. the National e-Assessment Centre (NeAC), in a faceless manner. However, certain taxpayers (primarily non-residents and search/seizure cases) will not be governed by this scheme, and their cases will continue to be assessed by the existing revenue officers. Any Indian subsidiaries/associated enterprises of such non-residents will, however, fall under the ambit of the new scheme.
As part of the scheme, regional e-assessment centres (ReAC), comprising an assessment unit, a verification unit, a technical unit, and a review unit, have been formed in twenty cities, to support the NeAC. These units will use a team-based approach and function harmoniously with each other in order to assess the tax returns that are filed by taxpayers. However, any communications between the aforesaid units and the taxpayers, as well as between these units, will be routed only through NeAC. Further, where any adjustment is proposed to the income declared by the taxpayer in the Tax return, the scheme has adequate safeguards for the taxpayer to respond before such adjustment is finalised.
The scheme envisages that the assessment of a taxpayer in one city could be conducted by a revenue official in another city. This should bring about greater transparency and efficiency, and it should also improve the quality of the assessments that are churned out. Furthermore, it should also ease the compliance burden of taxpayers, and hopefully result in the expeditious disposal of cases.
There will also be an additional advantage since the scheme will optimise the time of the taxpayers/their representatives by liberating them from multiple visits to the tax office. On the flip side, however, the advantage of being able to explain one’s case and resolve any queries that are raised by the revenue officer face-to-face will no longer be available.
As a part of the same platform, a faceless appeals scheme was announced, in order to help smoothen the litigation process, and this is now available from September 25 2020 (its on similar lines as faceless assessment scheme). Furthermore, a taxpayers’ charter has also been launched, outlining fourteen commitments of the income tax department and its expectations from the taxpayers for providing a transparent and taxpayer-friendly regime.
The road aheadThe government’s intention to eliminate the physical interface between the taxpayer and the revenue authorities is forward-looking, and the measures that it has taken in order to adopt new technology have been highly welcome. However, the implementation of the scheme will be key. It will be important to sensitise taxpayers as well as revenue officials so that the scheme, as the government envisages it, meets its intended purpose.
The eloquence that taxpayers have demonstrated when representing their case in person will now have to be displayed on paper. The process of the taxpayer resolving doubts and holding discussions with revenue officers will now have to be substituted by extensive and time-bound written submissions and the ability of the latter to comprehend the voluminous submissions. The need for robust paperwork will now be more important than ever.
A common perception is that litigation in India involves a cumbersome and long-drawn-out process, but the government is trying profusely to change that image. Both taxpayers as well as the revenue authorities will have to work in synchrony, and the mutual co-operation between them will be of paramount importance to making the scheme successful.
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