Faceless Tax Assessment
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“India has a population of 1.13 Billion, of which only 70 Million are in the tax system and only 15 Million of them pay tax”. – PM Narendra Modi

The Income Tax Department rolled out the Faceless Tax Assessment Scheme, from 13th August 2020 in order to bring more transparency and unbiased assessments, on the PAN INDIA basis for all the taxpayers.

Now, the Income Tax Department preparing to implement faceless income tax appeals from 25th September 2020.

Under Faceless Tax Assessment, a central system picks up tax returns for scrutiny based on certain risk parameters by using artificial intelligence and data analytics and then allots them randomly to a team of officers (i.e. assessment unit). This allocation is reviewed by officers (i.e. review unit) at another randomly selected location. All the tax notices need to be responded electronically, without the requirement of visiting a tax office or meeting any official.

In a recent webinar organized by Economic Times (ET) Markets and FICCI on Transparent Taxation, Finance Secretary Mr. Ajay Bhushan Pandey said that “it is completely doable, there may be some teething troubles but they can be addressed”.   

He also said that the department is studying whether cases of penalty and transfer pricing could be included in the faceless regime. He also added that pending appeals and cases will be resolved directly without interaction with the tax authorities, with a technical unit to help the appellate officer.

India’s taxation system will have to be aligned with the challenges of the global mobility of people, the finance secretary said in response to a question on the need for simplification of taxes for non-resident Indians.

He further said that “the Government of India and the CBDT will have to be more aligned to such problems because these are recent phenomena and this problem will get highlighted more. The faceless tax assessment system will ease compliance and widen the tax base while doing away with discretion and subjectivity at the hands of tax officers”.

The tax department is heavily relying upon data from multiple sources like banks, stock markets, mutual funds, property registrations, and foreign exchange transactions to identify mismatches in tax declarations and sort out evaders. The department will also use data triangulation reports with multiple sources to find out tax evaders and improve tax collections in faceless tax assessment cases.

In response to a question asked whether faceless tax assessments could lead to varying interpretations of rules or guidelines and thus lead to increased litigation, the finance secretary said that while officers were aware of the department’s stand, in case of different court orders on an issue, such matters would be discussed at a higher level within the CBDT.

The Income Tax Department is closely monitoring the implementation of faceless tax assessment if Income Tax returns picked up for scrutiny to ensure there is no increased compliance burden on the taxpayers. The provisions of video conferencing would also be there under the faceless assessment scheme for cases that require “deeper engagements”.

“The outcome of this system is that it is going to be very fair and have a very minimal scope of discretion. Our understanding is that this will lead to very fair and reasonable and good quality orders and therefore appeals and litigation could be avoided,” Pandey said.

India introduced faceless tax assessment scheme on pilot basis in October 2019, taking up about 58,000 cases. Of these cases, orders were passed in 11,000 cases and about 4,000-5,000 orders will be issued soon.

In the transformation to faceless tax assessment, about 53% of the 40,000 income tax officers will be involved across assessment, technical and legal units, besides those handling the digital infrastructure required for supporting the change.

If you wish to read about the features and process of the faceless assessment Scheme – Click Here

To read the article of Economic Times – Click Here

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