Faceless e-Assessment Scheme for Taxpayers: Challenges and impact on the Indian tax administration

This scheme takes away the power from regular assessing officers to conduct surveys and search which will also reduce huge unnecessary harassment of taxpayers.

For the past few years, the government has been taking several measures to bring in transformation in both direct and indirect taxes. The objective has been to create a taxpayer-friendly ecosystem by introducing greater transparency, simplification, and ease of meeting tax compliance. The introduction of the Faceless e-Assessment process by the Central Board of Direct Tax (CBDT) for income tax returns is a remarkable step towards achieving the objective.

The faceless tax administration means taxpayer by himself or through any professional or through the representative, Assessee personally or physically need not to visit the tax office or face the tax authorities for any assessment, appeal or any other ancillary tax administrative work.

The pretext was rightly set during the budget speech on the 5th July 2019 and subsequently, on 7th October 2019, the e-assessment system was inaugurated by the Finance Minister.  On 13th August 2020, the PM of India launched Transparent Taxation “Honouring the Honest” platform and by that lists out the rights of Assessees in a statute under the Income Tax law. The e-assessment scheme as announced by the FM will be known as the Faceless Assessment Scheme.

The outcome of this scheme is that the taxpayers will no longer be attached to a specific territory or jurisdiction or office for assessments as the Central Board of Direct Taxes has instead started a faceless, randomized and completely electronic assessment scheme, eliminating all human interfaces. The National e-Assessment Centre (NeAC) has been empowered as the main gateway for communication between the taxpayers and the tax authorities. The National e-Assessment Centre (NeAC) has been set up and shall have headquartered at New Delhi. Further, Regional e-Assessment Centers across 20 cities including Delhi, Mumbai, Kolkata and Chennai, under the faceless assessment scheme, notified on the 13th August 2020.

Under the new system, taxpayers won’t have to visit territorial jurisdiction tax officers or the income tax department on receiving income tax scrutiny or assessment notices. The National e-Assessment Centre shall serve a notice on the Assessee under sub-section (2) of section 143, specifying the issues for selection of his case for assessment. The Assessee may, within fifteen days from the date of receipt of the notice referred to in clause (i), file his response to the National e-assessment Centre. The procedures have detailed out in Notification No. 60/2020 dated 13 Aug 2020.

All communications between the National e-assessment Centre and the Assessee, or his authorized representative, or any other person shall be exchanged exclusively by electronic mode without any physical intervention. All departmental internal communications between the National e-assessment Centre, Regional e-assessment Centers and various units and between the team of authorities shall be exchanged exclusively by electronic mode. The Notices issues by the NeAC shall have a document identification number and the process is designed in such a way that it will always conceal the identity of the tax authority and the team.

The shift has been towards rationalization, simplification, greater transparency, ease of managing tax issues and creating an overall taxpayer-friendly ecosystem. The faceless e-assessment system for income tax, which is currently being piloted, is a milestone initiative towards achieving these goals and India is the first country to implement this system and this can help the country in coping up with current issues.

There will be certain cases where the Chief Commissioner or the Director-General in charge of the Regional e-assessment Centre may approve the request for a personal hearing based on his opinion of a deemed fit case to the situation. Then such hearing shall be conducted exclusively through video conferencing, including use of any telecommunication application software which supports video telephony, in accordance with the procedure laid down by CBDT.

With the implementation of the new assessment system, there will be a significant reduction in the delay in tax assessments and audits because the system would automatically flag unwanted actions or deference. Several units or teams will be set up to assess, review and verify tax demands or orders during the draft stage before being issued to the taxpayers. There will also be a specialized unit to assist in cases that require legal, industry-specific or economic expertise.

This scheme takes away the power from regular assessing officers to conduct surveys and search which will also reduce huge unnecessary harassment of taxpayers. The power for survey and search can be done by the investigation and tax deducted at source wing that too only after due authorization from a senior official of director general or principal commissioner rank.

This step may remove grey areas of the tax-administration and it will significantly reduce tax litigations stress and encourage voluntary tax compliance.

(By Kapil Rana, Founder & Chairman, HostBooks Limited)